Uganda Incentive Regime 2006-07

8/7/2019 Uganda Incentive Regime 2006-07

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Uganda Incentive Regime 2006/07 1

THE INVESTOR GUIDE TO UGANDATAX SYSTEM/URA SERVICES

AND THE CURRENT TAX INCENTIVEREGIME

2006/2007.


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1.0 UGANDAS TAX PORTFOLIO.

Ugandas tax system is segmented into Central Government and Local Government Taxstructures. The principal taxes levied by the Central Government (administered throughUganda Revenue Authority) are Income Tax both on individuals and companies, ValueAdded Tax, Import Duty, Excise Duty, Stamp Duty, Motor Vehicle fees, Permits and Non-tax revenues collected by various Ministries.

Taxes levied by the Local Government include Ground Rates, Trading and OperationalLicenses, Market dues, Parking fees and Building plans.

2.0 GETTING STARTED.

2.1 Tax Registration and Tax Identification Number (TIN).

Every person who is liable to tax in Uganda shall apply to the Commissioner to beregistered as a taxpayer. The application shall be in the format prescribed by thecommissioner and the person shall provide such information and documentation as the

commissioner may require. New Investors can pick registration forms from the URALiaison Officer at Uganda Investment Authority, or from any other URA office . Registrationis free of charge.

2.2 Requirements.

A copy of the Certificate of Incorporation. A copy of the business plan. Form 7 indicating the particulars of the directors and copies of identification. If directors different from shareholders, a board resolution on directorship. A copy of your business premise tenancy agreement plus payment receipt.

Upon registration, an Income Tax File number will be allocated to you identifying your fileand tax office, followed by a Tax Identification Number (TIN) for each applicant. The TINis your unique identifier for all tax purposes.

The taxes or charges payable will vary from business to business depending on thenature. It is important that an entrepreneur understands very well which taxes andcharges affect ones business and how often it occurs. For instance;

A motor vehicle license is four monthly, eight monthly or twelve monthly. A trading license is annual. Import Duty, Excise Duty, Income Tax, and Value Added Tax, are transactional just

like many other taxes or statutory charges. Income tax comes in only when one begins making profits. But even then one may

still not be subject to Income tax if the profit is not assessable to tax. Value added tax has to be charged only by registered persons. You must know your entitlements under a tax system e.g. VAT refunds, offset of tax

credits, allowable deductions, Zero rated or exempt supplies, tax free allowances,investment incentives, etc.


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3.0 CUSTOMS DUTIES STRUCTURE.

Uganda is a member of the East African Community (EAC) and the Common Market forEastern and Southern Africa (COMESA).

3.1 Summary of Customs duties.

a). Import Duty.There are basically three tax rates (tariff bands) 0%, 10% and 25% import duty. It ischarged on the Customs Value of the goods (see section 3.2 below for details).

b). Excise Duty

This is any Duty of Excise imposed, under the Excise Law, on the Excise Value (ImportDuty + Customs Value). It is generally imposed on goods that are manufactured and someservices offered in Uganda. (See section 7.0 below for details)

c). VATThis is duty of 18% or 0% on the VAT value (Customs Value + Import Duty) (See section

5.0 below for details and exemptions).

d). Withholding Tax

Section 119(3) of the IT Act imposes a duty of 6% on the Customs Value of goodsimported into Uganda. (See section 4.1.1 below for exemptions)

Total Amount Payable (TAP) = Import Duty + VAT + WHT + Excise Duty (whereapplicable)

3.2 The EAC.

The EAC Customs Union commenced operations on 1st

January 2005and comprises ofUganda, Kenya and Tanzania as member states. With effect from July 2007, Rwanda andBurundi will join the EAC.Therefore, Uganda customs is governed by the East AfricanCommunity Management Act (EACMA), 2005 and below are the basics.

1. Common duty rates which apply uniformly on goods imported into East AfricanCommunity (The EAC Common External Tariff CET). This is a three band CETstructure of 0%,10% and 25% applied as below. The highest rate of 25% will be reviewedafter 5 year.

0% is applied on Raw Materials and Capital goods. 10% is applied on semi-processed and intermediate goods.

25% is applied on finished goods. Additional policy measure beyond the maximum CET rate of 25% is applied to

goods (commonly referred to as sensitive goods) imported into East Africa. Thesegoods are treated as such because they are manufactured within the communityand for industry protection.

2. Zero rates on most of the goods originating and traded within East Africa.


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3. Reduction to zero duty rates within 5 years on goods originating from Kenya andimported into Uganda and Tanzania (Elimination of Internal Tariffs and other Charges ofEquivalent Effect).

Goods originating from Uganda exported to Tanzania shall be duty free; Goods originating from Tanzania exported to Uganda shall be duty free; Goods originating from Uganda and Tanzania exported to Kenya shall be duty free; A selected list of goods originating from Kenya exported to Uganda and Tanzania

will be subject to an interim tariff protection for a period of five (5) years from thedate of entry into force of the treaty, commencing with 10% in the first year,reducing to 8%, 6% (current), 4%, 2% in the second, third, fourth and fifth yearrespectively, and ultimately attaining 0% in the sixth year.

The reduced tariff is applicable to goods which satisfy the EAC Rules of Origin.

4. Preferential tariff treatment for eligible goods originating from COMESA and SADCcountries upto 31st December 2008.

5. A standard and harmonized exemption regime which does not give any officer or

minister any discretionary powers to grant exemption.( 5th schedule of the EACCMA).

6. A harmonized list of prohibited and restricted goods which are not allowed to beimported in or exported out any one partner state.(2nd & 3rd schedules of the EACCMA).

7. Tax incentives for producers of goods for export through Export Schemes where dutyon inputs is waived.( See brief on export schemes in 3.6 below). These include.

Export Processing Zones (EPZs). Freeport Trade Zones Manufacturing under bond Duty Draw Back for manufactures of goods for export.

Inward Processing.

8. Zero tariff on most of the capital goods, agricultural inputs, medicines and medicalequipment, raw materials and chemicals.

9. Computation of taxes based on CIF value at the initial port of discharge in the EastAfrican Community e.g Mombasa, Dar es Salaam. Airfreight cost is excluded in the valuefor computation of duties.

10. Use of Information Technology in Customs processes to enhance efficiency andreduce delays.

11. Duty remission schemes for inputs used in manufacture of some products including: Sugar for industrial use (90%) Inputs for the manufacture of exercise books and other essential goods

The EAC Common External Tariff shall not apply to trade between Kenya and Uganda forCOMESA member states and Tanzania for SADC member states.


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3.3 Some of the tax incentives under EAC Customs General Exemption Regime

Imported inputs by persons engaged in horticulture, agriculture or floriculture, whichthe Commissioner is satisfied are for use in the horticulture, agriculture orfloriculture sector.

Inputs imported by a manufacturer for use in the manufacture of agriculturalequipment.

Refrigerated Trucks Packaging materials and raw materials for manufacture of medicaments. Imported packaging materials exclusively for export products. Packaging materials for milk (tetra pack) and grain milling are VAT-free but fetch a

duty if imported from outside the East African Community. All other packaging materials and those for domestic consumption pay duty from

10%-25% basically to protect the local industry. First Arrival Privileges in the form of duty exemptions for personal effects and

(motor vehicle previously owned for at least 12 months) to all investors andexpatriates coming into Uganda.

Diagnostic Reagents recommended by the Director of Medical Services or the

Director of Veterinary Services for use in hospitals and clinics subject to suchlimitations as the Commissioner in a Partner State may impose.

Splints imported by a manufacturer for use in the manufacture of matches Any of the following goods (Hotel Equipment) engraved or printed or marked with

the hotel logo imported by a licensed hotel for its use: Washing machines; KitchenWare; Cookers; Fridges and freezers; Air Conditioning Systems; Cutlery;Televisions; Carpets; Furniture; and Linen and Curtains.

Diapers, Urine bags and hygienic bags Any media containing Computer Software.

3.4 Documents required by customs for clearance of imported goods.

1) A Customs Bill of Entry duly completed and signed by a cutoms agent.2) Other documents related to the purchase and importation of the goods such as:

a. Commercial Invoiceb. Bill of Lading (for imports by seaa),c. Airway Bill (for imports by air)d. Railway Consignment Note (for imports by rail).e. Freight Invoice.f. Insurance Certificate (if goods were insured).g. Proforma Invoice.h. Certificate of Origin.

i. Permits (if necessary).j. Original and Translated certificates of cancellation or permanent export for

motor vehicles.k. Road Transit Customs document (commonly known as C63) prepared at

sea-port and entry port in Uganda.l. URA Form 1 for motor vehicles.m. Any other relevant documents.


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3.5 COMESA

The Common Market for Eastern and Southern Africa (COMESA) is the largest Africaneconomic grouping comprising 20 member states with a population close to 400 millionpeople. The member states are Uganda, Kenya, Angola, Burundi, Comoros, DemocraticRepublic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Libya, Madagascar, Malawi,Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Zambia and Zimbabwe.

The mission of the COMESA treaty is the promotion of intra-COMESA Trade. COMESAlaunched the first ever African Free Trade Area (FTA) on 31st October 2000. Uganda is anactive member of COMESA but not yet a member of the COMESA FTA. The currentmembership of the FTA is 13 comprising Union des Comoros, Libya, Burundi, Djibouti,Egypt, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Zambia and Zimbabwe.COMESA is scheduled to launch a Customs Union with a Common External Tariff in 2008which will greatly help the 20 member states to realize a fully integrated and internationallycompetitive economic community in which goods, services, capital and persons are able tomove freely.

Following the launching of the COMESA FTA, it was agreed that trade between COMESAFTA and non-FTA members would be conducted on the basis of reciprocity. Currently,Uganda offers imports into Uganda from COMESA countries at 80% tariff reduction.COMESA import duty rates are 0% for raw materials, 4% for intermediate goods and 6%for finished products.

COMESAs Regional Customs Bond Guarantee scheme (RCBG) was launched inSeptember 2006 and became effective early 2007. The scheme was designed to reducetransit costs that were associated with the former practice of nationally executed customsbond for transit traffic. The implementation of the scheme is providing a consistent serviceto traders and increasing the reliability of the transport system.

3.6 Export Schemes/Incentives

3.6.0 Manufacturing under Bond.

This scheme allows manufacturers to seek custom license to hold and use imported rawmaterials intended for manufacture for export in secured places without payment of taxes.It makes available working capital, which would have been tied up through paying dutiesimmediately after importation. The annual licence fee for a bonded factory is $1,500 percalender year or on pro rata basis if issued within calender year.

3.6.1 Duty Draw Back

This is a refund of all or part of any import duty paid on materials inputs imported toproduce for export or used in a manner or for a purpose prescribed as a condition forgranting duty draw back. Duty may be refunded on raw materials imported and used onthe goods locally produced for export. The rationale is to enable manufacturers and other


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exporters to compete favorably in foreign markets without the handicap of including costsof imported inputs in the final export price.

Duty draw back may also be allowed on goods imported for use in the manufacture ofgoods which are transferred to a free port or to an export processing zone (EPZ) providedthat:

The goods shall be a direct result of imported goods used in the manufacture ofsuch goods.

The owner of the goods shall have obtained authorization from the commissionerprior to the manufacture.

3.6.2 Export Processing Zones (EPZs) and Free Ports

A free zone is a designated area where goods introduced into the designated area aregenerally regarded, so far as import duties are concerned, as being outside the customsterritory and includes an export processing zone or freeport zone. The commissioner may

designate areas in EPZs or in Freeports in which customs formalities shall be carried out.

An export processing zone (EPZ) is a designated part of a zone or territory of Uganda,where any goods introduced are generally regarded for the purpose of import duties andtaxes, as being outside the customs territory but are duly restricted by controlled accessand where the benefits provided under the Act apply. The activities which may be carriedout within the EPZ are manufacturing, commercial and service activities for export.

A freeport is a customs controlled area where imported duty free goods are stored for thepurpose of trade. A licensee of a freeport may only carry out those activities that arerequired to preserve goods, or to improve their packaging, preparation for shipment or

marketability quality, without changing the character of the goods. The activities shallinclude ware housing and storage, labelling, packing and repacking, sorting, grading,cleaning and mixing, breaking bulk, simple assembly, and grouping of packages underCustoms supevison.

Incentives, criteria and eligibility (Provisional pending Parliament decision)

Export Scheme Fiscal Incentives Justification. Criteria/Conditionalityfor eligibility

1. EPZ - 0% corporate tax for 10 yearsand 25% there after.- Duty free inputs.

- Exemption from VAT.- Exemption from withholding taxfor 10 years.- 20% sales on the local market.- Exemption from stamp duty.

- To encourage valueaddition of agricultureproducts for export.

- To increase value ofexports and more foreignexchange.- To create jobs.- To make Ugandacompetitive on exportsfrom EAC and COMESAcountries.

- 80% export of total production- Value addition leading tchange of tariff heading and/o

35% value addition.- Creation of jobs (skilled ansemi-skilled) based on sectors.- New investments.- Minimum capital of $500,000.- Evidence of technical anskills transfer.


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2. Free Ports - 0% corporate tax for 10 yearsand 20% there after.- Duty free inputs.- Exemption from VAT- Exemption from withholding taxfor 10 years.- 20% sales on local market.- exemption from stamp duty.

- Develop a regional hubfor commercialdistribution.- Incentive for futureintreprenuerialdevelopment.- Provide market for localservices and utilities.

- Internal revenuegeneration.

- New investments.- Minimum capital employeshould be $ 500,000.- Evidence of financial capacity

4.0 DOMESTIC TAXES STRUCTURE

Tax on Corporate Income

Resident and Non Resident companiesMining Companies

Rate

30%25%-45%

Tax on Rental IncomeIndividual Rental Income Tax

Corporate Rental Income

20% Computed at 80% of Gross rent afterallowing a threshold of Shs. 1,560,000i.e. 20%*(80% of gross rent 1,560,000)

30% (as in tax on corporate income)Resident Individuals(annual)

0-1,560,0001,560,001-2,820,0002,820,001-4,920,000

Over 4,920,000

AnnualNil10% of excess of 1,560,000126,000 + 20% of excess of 2,820,000

546,000 + 30% of excess of 4,920,000Non-Resident Individuals

0-2,820,0002,820,001-4,920,000Over 4,920,000

Annual10% of chargeable income282,000 + 20% of excess of 2,820,000709,000 + 30% of excess of 4,920,000

Pay As You Earn (PAYE) 0-130,000130,001-235,000235,001-410,000410,001 and above

Monthly for employeesNil10% of excess of 130,00010,500 + 20% 0f excess of 235,00145,500 + 30% of excess of 410,001

Withholding Tax

Certain payments are liable to withholding tax. A summary of the withholding tax ratesapplicable to other payments is set out below.


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Type of Payment. Withholding Tax Rates and Income Tax SectionsResidentPayee

IT ActSection

Non-ResidentPayee

IT ActSection

Branch Profits 15% 82Management & Professional Fees. 6% 119A 15% 85Royalty Payments. 15% 83

Dividends. 15% 118 15% 83Interest. 15% 117 15% 83Rent 15% 83Natural Resource Payment 15% 83Performing Artists & Sports Persons. 15% 84Contractors and Professionals 15% 85Good and Services (also see 6% 119

Please note that any payment to a person in Uganda from the Government of Uganda, aGovernment institution, a local authority, any company controlled by the Government ofUganda or any person designated in a notice issued by the Minister responsible for

finance (See schedule 4 attached on page 23) of an amount in aggregate exceeding onemillion shillings for the supply of goods or materials of any kinds or any service is subjectto a 6% withholding tax.

4.1 Summary of the Current Incentive Regime under Domestic Taxes.

4.1.1 Withholding Tax Exemptions.

The following are exempt from withholding tax.

(a) a supply or importation of petroleum or petroleum products, includingfurnace oil, lubricants, other than cosmetics, and fabrics or yarnmanufactured out of petroleum products;

(b) a supply or importation of plant and machinery;(c) a supply or importation of human or animal drugs;(d) a supply or importation of scholastic materials;(e) importations by organizations within the definition of exempt organization

in section 2(bb)(i)(B);(f) a supplier or importer

(i) who is exempt from tax under this Act; or

(ii) who the Commissioner is satisfied has regularly complied with theobligations imposed on the supplier or importer under this Act; or

(g) The supply or importation of raw materials.


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4.1.2 Capital Allowances

In the 1997/98 Budget Speech, the Hon Minister for Finance, under section 14 of theFinance Statute 1997, repealed sections 25 of the Investment Code 1991 which providedfor 3 to 6 years tax holiday (see S167 of the IT ACT). The Minister proposed a newincentive regime of investment capital allowances to replace the tax holiday facility. Thenew incentive regime is specified in the Income Tax Act, 1997 in sections 26-38, theseinvestment capital allowances can be summarized in three categories:

Category 1

The incentives covered in this category are capital allowances/expenses which aredeductible once from the Companys Income.

Type of allowance Rate. Condition.

Initial allowancegranted in 1st year ofproduction

50% Granted on cost base of plant & machinery for Industrieslocated in Kampala, Entebbe, Namanve, Jinja & Njeru.

Initial allowancegranted in 1st year ofproduction

75% Granted on the cost base of plant and machinery forIndustries located elsewhere in Uganda

Start-up costs 25% Granted on actual cost over the first four years in four equinstallments.

Scientific ResearchCapital Expenditure

100% Granted on actual cost of scientific research incurred durina year of income in the course of carrying on a business, tincome of which is included in gross income. Must beundertaken in the development of the persons business.

Training Expenditure 100% Granted on actual cost of training incurred during a year oincome for the training or tertiary education of a citizen orpermanent resident of Uganda employed in the business bthe employer (not exceeding 5 years in total)

Mineral ExplorationExpenditure

100% Granted on actual cost incurred in mineral exploration.Expenditure of a capital nature incurred in searching for,discovering and testing, winning access to deposit ofminerals in Uganda.

Initial allowancegranted in 1st year ofuse of an IndustrialBuilding.

20% Granted on the cost base of an industrial building, (includitourism facilities like hotels and lodges and capitalexpenditure incurred on the extension of an existingindustrial building but excluding commercial building).

Repairs and MinorCapital Equipment

100% Granted on actual cost incurred in a year. Expenditure on repair of property occupied or used

for the business. Cost of minor capital equipment (a depreciable asse

costing less than fifty currency points and functioninin its own right).


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Category 2: Deductible Annual Allowances

Depreciable Assets only (classes 1-4 & Farm works) (sixth schedule) under decliningbalance method per annum:

Class. Rate. Condition.

Class 1 40% Computers and data handling equipment.Class 2 35% Light automobiles (buses with less than 30 seater, or

goods vehicles with a load capacity of less than 7 tons).Construction and earth moving equipment.

Class 3 30% Heavy automobiles (buses with 30 or more seater, orgoods vehicles designed to carry or pull 7 or more tons)Specialized trucks, trailers, tractors, plant & machineryused in farming, manufacturing & mining operations.

Class 4 20% All other depreciable assets (Railroad cars, Locomotivesand equipment, Vessels, tugs and similar watertransportation equipment, aircraft, specialized publicutility plant, equipment and machinery, Office furniture,fixtures & equipment, etc).

FarmingCosts

20% Farm works i.e. labor quarters, immovable building, otherworks necessary for the farm)

Category 3: Other Annual Depreciation Allowances

IndustrialBuildingAllowance

5% Cost base net of initial allowance/deduction on astraight-line basis per annum on qualifyingindustrial building (includes approvedcommercial building, Hotels and Hospitals.)

IntangibleAssets

Varies. Granted on cost of asset in equal annualinstallments over its useful life on condition that ithas an ascertainable useful life and value e.g.leasehold, patents, royalties.

Horticulture. 20% Granted on Actual cost in four equal annualinstallments. Cost must be incurred onacquisition of horticultural plant and/or onConstruction of a green house.

The deductions covered under category 1, enable the investor to recover most of his costsin the first year of operation. After applying the initial allowances, the cost base of an assetto which the initial allowance applies is reduced by the amount of the initial deductionallowed to get the written down value of the asset at the end of the year of income, uponwhich, and in the subsequent years, deductions as shown in Categories 2 & 3 are applieduntil the Plant/Machinery, Building or Equipment is completely written off. Each year, afterallowing the deductions, the resulting Net Income is taxed at an appropriate rate ofcorporation tax.


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5.0 VAT REGISTRATION

This is for those businesses, which qualify, that is, businesses going to supply taxablegoods and services. VAT registration is either compulsory or voluntary depending on yourcircumstances and the annual registration threshold is Ushs 50 million per annum.Voluntary registration is permissible under the law for those whose turnover is below thethreshhold, but granted at the discretion of the Commissioner General. Where a personqualifies for registration, a registration certificate is to be issued effective from thebeginning of the period in which the duty to register arose (in case of compulsoryregistration) and/or effective from the beginning of the month immediately following themonth in which the person applied S9 (3)(in case of voluntary registration).

5.1 Registration as an Investment Trader:

An Investment Trader is a person approved by Uganda Investment Authority as aninvestor local or foreign. For the purpose of VAT, the investor must have plans to maketaxable supplies in due course in order to qualify for refund of input tax incurred during theinvestment period for a renewable period of four years. The Commissioner General will

only register such an enterprise provided satisfactory evidence is produced supporting theintention to make taxable supplies.

Registration as an Investment Trader allows one to claim a refund of input tax suffered inthe period prior to making taxable supplies provided the period does not exceed two years.

An Investment Trader shall abide by all the duties and obligations of a registered person,including the keeping of proper books of accounts and the filing of regular returns.

A person shall cease to be an Investment Traderimmediatelyafter making a taxablesupply in the course of business (see VAT Regulation 6).

5.2 Benefits of VAT registration:

Able to recover the whole or part of the tax charged by your suppliers (input tax).This will lead to

Reduced cost of input, Improved profits and Competitive pricing.

A registered person can issue tax invoices to his customers who can then claim thetax charged.

Section 2a(3) & (4) Upon registration, a person who has paid tax on taxable

supplies or imports of goods, including capital assets, prior to registration, mayclaim the input tax paid or payable thereof. However, such a claim is onlyacceptable for goods acquired not more than six months prior to the date ofregistration. In addition such goods must be still in stock, hence the need of adetailed stock take on registration. This credit arises on the date of registration.NOTE that the input tax credit is claimed on a separate application form and not the1st VAT returns.


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VAT deferral facility is available to an Investment Trader on plant and machineryincluding specialized vehicles, raw materials for drugs, seedlings, greenhouseequipments, plastic sleeves and tea clone for a period of one month. (Seerequirements and procedure in section 5.7 below).

Investors who register as Investment Traders are entitled to VAT refund on buildingmaterials for industrial/commercial buildings.

5.3 Obligations of a VAT registered person:

Keep proper records as is required by law. Submit monthly returns and pay tax due on time. Charge VAT on all taxable supplies

5.4 Taxable Person dealing in Mixed Supplies.

Where a taxable person is dealing in mixed supplies (i.e. standard rated and exemptsupplies), only part of the input tax may be credited using a formula stipulated in Sec

(28)(7)(b) and the 4th

schedule para.1(f), ( i.e. The Normal Method of Apportionment).Where the fraction B/C is Less than 5%, No credit for input tax paid is allowed; and wherethe fraction is Greater than 95%, the taxable person may credit all input tax for the period.An example is hotel accomodation outside Kampala and Entebbe is VAT exempt whereasother hotel services are standard rated.

The process of attributing input tax to taxable and exempt supplies is referred to asapportionment of input tax. The result of apportionment must be a fair and reasonableinput tax credit to the taxable person. Section 28 of the VAT Act and paragraph 15 of theVAT regulations 1996 provide that where a registered taxpayer is disadvantaged by theprovisions of Sec.(28)(7)(b) of the VAT Act, the Commissioner General may approve ,(in

writing), on application by the taxable person, an alternative method of calculating theinput tax to be credited referred to as the Standard Alternative Method (SAM).

5.5 Imported Service/Reverse Charges.

Sections 4 (c) and 5(c) of the VAT Act imposes VAT on any import of services by anyperson and the person liable to pay the VAT is the receipient or importer of the service.Also see para. 14 of VAT Regulations 1996, the recipient of the service is obliged todeclare such services, complete and pay VAT thereon to an authorized bank on aprescribed form (Form VAT 500). A VAT registered person may claim such payments asinput tax in the monthly VAT return as per the povisions of Sec 28 of the VAT Act.

The value of the imported services is the gross amount before deducting withholding tax(of 15%) on foreign payments.

Imported services include, but are not limited to, the following:Consultancy services, Technical support, IT support, Audit fees/Accounting Consultancy,Legal consultancy, Inter-company service charges, Royalties, Reuters charges,Mmanagement fees and Professional fees, Computer/software support, Iternet access,


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trainning costs, Outside data processing for banks, regional sourcing, Debt collection fees,Technical services/development costs, Insurance consultancy, Service fees andInformation services, ISO Certification, Constructio survey and design, Offshoreadvertising, Surveyors and Risk assessors for Insurance companies, Architectural design,

5.6 Zero Rated Supplies.

Zero rated supplies are goods and services which are exempt from VAT but in respect ofwhich a VAT (input tax) is claimable. Such taxable suppliers may register for VAT. Zerorated supplies include the following:

a) Supply of goods or services where the good or services are exported fromUganda;

b) The supply of international transport of goods or passengers and tickets for theirtransport;

c) The supply of drugs and medicines;

d) The supply of educational materials and the supply of printing services for

educational materials ;( educational materials means materials suitable for useonly in public libraries and educational establishments specified in paragraph 2of the Second Schedule to the IT Act);

e) The supply of seeds, fertilizers, pesticides, and hoes; (pesticides meansinsecticides, rodenticides, fungicides and herbicides but does not includepesticides packaged for personal or domestic use.)

f) The supply of cereals, where the cereals are grown, milled or produced inUganda;

g) The supply of machinery, tools and implements suitable for use only inagriculture;

h) The supply of milk, including milk treated in any way to preserve it;.5.7 VAT Exempt Supplies

Certain goods and services are exempt from VAT. A person registered for VAT cannotclaim an input tax on exempt goods and services neither is such a person required toregister for VAT. Similarly, such person cannot charge VAT (as an output tax) on goodsand services exempt from VAT.The following goods and services are exempt from VAT.

a) The supply of unprocessed foodstuffs, including agricultural products and livestock;

b) The supply of postage stamps;c) The supply of financial services;

d) The supply of insurance services;

e) The supply of unimproved land;

f) The supply by way of lease or letting of immovable property other than


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A lease or letting of commercial premises;

A lease or letting of hotel or holiday accommodation;

A lease or letting for periods not exceeding three months;

A lease or letting for parking or storing cars or other vehicles; or

A lease or letting of service apartments

g) The supply of education services;

h) The supply of medical, dental, and nursing services;

i) The supply of social welfare services;

j) The supply of betting, lotteries and games of chance;

k) The supply of goods as part of the transfer of a business as going concern by onetaxable person to another person;

l) The supply of burial and cremation services;

m) The supply of precious metals and other valuables to the Bank of Uganda for theState Treasury;

n) The supply of passenger transportation services (other than Tour and Traveloperators)

o) The supply of petroleum fuels, subject to excise duty, (motor spirit, kerosene andgas oil)

p) The supply of dental, medical and veterinary equipment;

q) The supply of feeds for poultry and livestock;

r) The supply of machinery used for the processing of agricultural or dairy products;

s) The supply of photosensitive semiconductor devices, including photovoltaicdevices, whether or not assembled in modules or made into panels; light emittingdiodes; solar water heaters and solar cookers

t) The supply of accommodation in tourist lodges and hotels outside Kampala andEntebbe;

u) The supply of computers, printers, parts and accessories falling under headings84.71 and 84.73 of the harmonized coding system of the customs law

v) The supply of computer software;

w) The supply of lifejackets, life saving gear, headgear and speed governors.

x) The supply of Mobile toilets and Ekoloo toilets made form polyethylene;

y) The supply of insecticides and acaricides;

z) The supply of feasibility studies, engineering designs and consultancy servicesand civil works related to roads and bridges construction and water works.

aa) The supply of contraceptive sheaths

bb) The supply of liquefied petroleum gas.


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5.8 VAT Deferment on Plant, Machinery & Equipment.

This is a facility granted to VAT registered taxpayers where by payment of VAT atimportation on specified imports is postponed to the future. URA then collects the VAT onproduction of final goods, where applicable.

5.8.1 The following are the conditions that have to be fulfilled:

1) Importer should be registered for VAT and henceforth filing monthly VAT Returns.2) Should have a certificate of incorporation3) Should have fulfilled the customs procedures concerning entering of goods.4) The verification account on the Customs Bill of Entry should be in original form with

a well detailed verification account to facilitate classification of the goods.5) All documents relating to transaction of the goods like Bill of lading / Airway Bill,

commercial invoice, packing list as well as any other relevant documents.6) Importer should make an application in writing prior to effecting the deferment

process.

5.8.2 What items are deferrable?

1) Plant and machinery (chapter 84, 85, 90). Towers and masts of HarmonizedSystem Code 7308.20.00 specifically for transmission purposes. A Machine is adevice consisting of fixed and moving parts that modifies mechanical energy andtransmits it in a more useful form.

*Note: Spares and components when imported separately are not deferrable.2) Green houses & Cold rooms (chapter 94)3) Specialized vehicles-Trucks of heading 87054) Flower cuttings (other cuttings)

5.8.3 The VAT deferment process:

Once all the above conditions have been fulfilled, the importer through his appointed agentlodges the documents to Tariff section (Customs Headquarters). The following are theprocesses involved.

1) New applicants are required to make a formal application to AssistantCommissioner Trade.

2) A completed form 230 this form is called the application for Deferment of VATwith VAT returns (form 200) together with a Customs bill of entry with all relevantaccompanying documents are forwarded to Supervisor Tariff.

3) Once approved, a release order is issued which enables the release of the goodson credit from Customs to the owner.

NOTE1. In case of intention to import machinery in phases, a schedule showing a

break down of various items to be imported should be forwarded to Tariffbefore goods are brought into the country.


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2. In respect of importation of unassembled or disassembled Machinery,diagram / assembly plan (identifying each imported part) should be attached.A contract may be required for consideration as a unit for classificationpurposes.

5.8.4 VAT discharge:

A period of thirty (30) days is given to the beneficiary of the VAT deferment facility to beable to install plant/machinery. After the thirty days, the VAT deferred is supposed to bedischarged.

The following are the procedures for discharge:(a) Form 231 fully completed and endorsed with VAT returns for three preceding

months, form 230 and released order should be forwarded to the Tariff section.(b) Issuance of the discharge notice completes the VAT deferment process.

Failure to discharge VAT in the specified period, a Demand Note shall be issued to theimporter and the VAT amount recovered according to prescribed law.

5.8.5 Inspection

Officers in Tariff section will inspect premises to ascertain if machinery where VAT hasbeen deferred is being utilized.

5.8.6 Transfer of ownership

The equipment is not supposed to be transferred or sold without authority from theCommissioner Customs.

6.0 SHORT TERM INCENTIVES

Note: Other short term incentives available to investors who will have set up business inUganda include the following. (Please contact URA for details and guidance).

6.1 Hotel Construction Materials.

This is a short term incentive facility by government, in respect to taxes on constructionmaterials sourced from abroad, to revamp and modernize the tourism and hotel industry inthe country. The Ministry of Finance will, on case by case basis, pay, on behalf of the

hoteliers, the duties and taxes, on construction materials, approved by the minister prior toimportation for the construction and renovation of their hotels. However, the facility doesnot cover cement, steel and other locally produced items. For persons intending toconstruct and deal in hotel business especially at this time as government prepares forCommonwealth Heads of Government Meeting (CHOGM),


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6.2 Duty Free Diesel

This is a short term incentive facility by government to Large Scale Enterprises in order toalleviate the impact of power shortages on their operations. The facility operates by way ofa tax waiver of Shs.450/= per litre on Diesel used in the generation of power for businessoperations. Conditions for joining the scheme with effect from 1st June 2006.

1) The scheme will be implemented in phases, and the first phase will cover firms inthe Manufacturing, Agro-Processing, Health, Hotel, Printing & Publishing, andTelecommunication Sectors that satisfy the following conditions.

Must have a generating set of at least 100KVA capacity Must be VAT registered except if exempted by Law. Must have applied, been verified and approved by URA.

2) Also to be considered with effect from 1st December 2006 are firms havinggenerators with capacities below 100KVA but strictly in the following sectors.

Flower

Telecommunications and Banking.3) The beneficiary enterprises will notify URA on the Generator Duty Free Diesel

Form (DFD) application form of the specific fuel Importer from among currentlylimited to those listed below with whom they will have agreed to supply the duty freediesel.

a. Caltex Oils (U) Ltd, d. Shell Uganda Ltd, g. M-oil (U) Ltd,b. Petrocity, Kobil e. Gapco h. Total (U) Ltdc. Petro f. Mogas g. Hared Petroleum

4) The qualifying enterprise will be required to keep a clear record of the purchasesand utilization of the tax-free diesel.

5) All Generators owned by the beneficiary Enterprises should have odometers andfuel meter or Kilowatt-hour readers that are in good working condition. Those without these facilities will be required to have them installed within three months from1st June 2006.

6) Each qualifying Enterprise will be allowed to consume diesel up to a specificmonthly ceiling based on the generator capacity and level of operation.

7) Any violation of the terms relating to this facility will lead to automaticdisqualification from the scheme and other punitive measures applied inaccordance with the Law.

Note: The above conditions may be reviewed as and when circumstances

dictate.


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7.0 EXCISE DUTY SCHEDULE FOR FINANCIAL YEAR 2006/07

The following goods and services are liable to Excise Duty as specified in the Excise Tariff(Amendment) Act 2006. investors intending to deal in excisable goods and services arerequired to register with URA.

Item Rate of excise duty1. Extracts, Essences and Concentrates 10%2. Cigars, Cheroots, Cigarillos containing tobacco 150%a) Soft cup, Regular Size (70mm Length including the filter) Shs. 25,000 per

1000 sticksc) Hinge Lid Shs. 48,000 per

1000 sticksd) Other 150%e) Smoking tobacco, whether or not containing 150%

Tobacco substitutes in any proportion

I. Homogenised or reconstituted tobacco 150%II. Other 150%

3. Beera) Made from malt 60%b) Whose local raw material content, excluding water,

is at least 75% by weight of its constituents 30%4. Spirits 60%5. Wine

a) made from locally produced raw materials 20%b) Other 70%

6. Waters, including mineral waters and aerated waters, 13%containing sweetening matter or flavoured

7. Mineral water, bottled water and other water purposely for drinking 10%8. Airtime 12%9. Landlines and public payphones 5%10.Cement Shs. 500 per 50kg11.Fuel

a) Motor Spirit (gasoline) Shs. 720/ per litreb) Gas oil (automotive, light, amber for high speed engine) Shs. 450/ per litrec) Other gas oils Shs. 450/ per litred) Gas Oil for Thermal Power Generation to national grid Nil effective Ist

March 2006e) Illuminating Kerosene Shs.200/ per litre

12.Cane or beet sugar and chemically pure sucrose in solid form Shs.50 per kg13.Cane or beet sugar for industrial use 0%14.Sacks and Bags 10%


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Disclaimer: This is just a simplified guide. It is not the law. Please always refer to the lawor to URA in case of any questions about the contents of this document. Incentives maybe subject to change without notice.

Contacts

For any inquiries, queries and complaints use the call center Toll-free help line.

URA Call Centre Toll Free Line: 08001-17000URA Website: www.ugrevenue.comInquires: [email protected] and [email protected] Generals Office: 256-414-334416/7Customs & Excise Department Hdqt: 256-414-317196/200Domestic Taxes Departmen Hdqtt: 256-414-317168/166/080

Prepared by:Gimbo Martha WereURA Liaison Officer

Uganda Investment AuthorityTel-Mob: 256-772-593027Tel-Dir: 256-414-301155Tel-Gen: 256-414-301000/100Fax-UIA: 256-414-342903Email: [email protected]