Withholding Tax Guide For Uganda

In this withholding tax guide for Uganda, you are going to learn more about withholding tax levied in Uganda. It’s very essential for you understand its dynamics like withholding tax on supplies and imports, payment to resident persons, tax on employment income,

This is a form of Income tax deducted at source by one person upon effecting payment to another person.

Let me explain, if you are my employee. I gave you a job to do. I as your employer have a right to deduct a percentage on your salary before I pay it to you. That is where the word withholding comes about hence withholding tax.

I think by now you get the whole meaning of withholding tax especially about how it’s levied.

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What are the advantages of withholding tax in Uganda?

It acts as a counter evasion measure. This is to say to provide information about a given transaction and also bring into the tax income which would otherwise escape taxation.

It also eases collection in terms of time and effort. A person withholding tax will save the tax collector the burden of looking for so many tax payers of varying addresses.

Collection costs that would have been incurred are saved.

How is the withholding tax collected in Uganda?

The withholding agent must deduct on payment of tax at the rates as prescribed in the Income Tax Act. The withholding agent must remit to the commissioner general the tax so withheld or deducted within 15 days following the expiry of the month in which the payment subject to withholding tax was made.

You as the payee are subjected to the Act assessed on such gross income before deducting any tax in the ordinary way.

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Tax on employment income

This is deducted by the employer from employment earnings of every liable employee on a monthly basis under the Pay As You Earn (PAYE) system.

PAYMENTS TO NON-RESIDENTS IN UGANDA

Tax on International Payments

Here, tax is imposed on every non-resident person who derives any dividend, interest, rent, natural resource payment or management charge from sources in Uganda. If you happen to fall in this category, your payer will withhold a 15% of the gross amount before payment or remittance of the amount is effected.

However, you should note that interest paid abroad by a resident person in respect of debentures which were issued by a foreign company for purposes of raising loan capital to carry on business in Uganda is exempt subject to meeting the conditions below. (Section 83 (5) of the Income Tax Act)

The debentures were widely issued by the company to a non-resident person outside Uganda for the purposes of raising a loan outside Uganda.

The company issued the debentures for the purpose of raising funds for use in the business carried out in Uganda.

When the interest is paid outside Uganda

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Tax on Public Entertainers and Sports Persons

In this case, tax is imposed on every non-resident public entertainer or sports person who derives income from any performance in Uganda. The tax charged is 15% of gross amount of the remuneration derived by the public entertainer or sports or receipts derived by any theatricals.

Tax on payment to contractors or professionals

A 15% tax is imposed on every non-resident person deriving income under a Ugandan source service contract.

PAYMENT TO RESIDENT PERSONS IN UGANDA

Tax on interest payment

A resident person who pays interest to another resident person is supposed to withhold a tax at 15% of the gross amount of the interest paid. However you should also note that withholding tax is not applicable where interest is;

Paid by a natural person
Interest other than interest from government securities paid to the financial institutions
Interest paid by company to association company
Interest exempted to tax in the hands of the recipient

Tax on Dividends

A resident company which pays a dividend to a shareholder is required to withhold tax at 10% of the gross amount of the dividends paid.

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WITHHOLDING TAX ON SUPPLIES AND IMPORTS

Tax on Goods and Services

Where the government of Uganda, a government institution, a local authority, a company in which government has interest or any person designated in a notice issued by the ministry of Finance, pays amount in aggregate exceeding one/1 million shillings to any person in Uganda for the supply of goods, materials of any kind or services, the payer is required to withhold 6% of the gross amount.

The threshold of 1 million Uganda shillings is in respect of the total contract value implying that separate supplies which constitute one contract are subjected to 6% withholding tax regardless of the amount paid per supply of the transaction.

Tax on sale of commercial buildings

A resident person who purchases a commercial building from a non-resident person shall withhold tax on the gross amount of the payment at 10% of the gross amount.

Tax on Imports to Uganda

Every person who imports goods into Uganda is liable to pay withholding tax at the importation at 6% based on the customs value in Uganda. This provision does not apply to the following categories of imports;

Plant and machinery
Human and animal drugs
Scholastic materials Import of exempt organization/ persons for example African Development Bank, European Union, International Monetary Fund, Food and Agriculture organization.
Raw materials imported by a manufacturer solely for generating finished products.

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Tax on Professional Fess

A resident person who pays management fees or professional fees is required to withhold tax of 6% of gross amount of payment. Excluded from this provision are the resident persons who the Commissioner General is satisfied that they have regularly complied with the regulations imposed by the Income Tax Act and those professionals engaged as pay roll employees.