BASIC TAX POLICY AND COMPLIANCE TRAINING TO

USEA EXECUTIVE COMMITTEE MEMBERS, SECRETARIAT AND USEA

MEMEBRS

FEBRUARY 2019

Presented by Mr. Juma Buli

Introduction and Source Rules

Chargeable Income and Deductions

DTAs and Transfer Pricing

Tax Administration

and its Procedures

Question and Answer

Introduction, Rates and Source Rules

Chargeable Income and Deductions

DTAs and Transfer Pricing

Corporation Tax Administration and its Procedures

Q & A

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Presentation outline

Introduction and Overview of

Corporation Tax in Uganda

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Corporation tax is levied on gains or profits from

business and property income that are chargeable to

tax.

Business can be defined to include any trade,

profession, vocation or adventure in the nature of

trade.

Business does not include employment.

Dictionary definition of “trade” is the act of buying

and selling goods and services.

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Introduction and Overview

Imposition Income tax and Rate of Tax: Income Tax is charged for each year of income.

It is imposed on every person with chargeable

income for the year of income.

Rate applicable to companies other than mining

companies is 30%.

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Introduction and Overview Cont’d…

Imposition of Rental Tax and Rate of Tax: Rental Tax is charged for each year of income.

It is imposed on every person who has rental income.

“Rental Income”, means the total amount of rent

derived by a person from the lease of immovable

property in Uganda with the deduction of any

expenditures and losses incurred in respect of the

property. The rate applicable is 30%.

Rental income is taxed separately and is not included

in any other income of a company.

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Introduction and Overview Cont’d…

A company is a resident company for a year of income

if it is;

Is incorporated or formed under the laws of Uganda;

Has its management and control exercised in Uganda

at any time during the year of income; or

Undertakes the majority of its operations in Uganda

during the year of income.

A non-resident company is one which is does not fall in

any of the above.

Resident companies are taxed on worldwide income

whereas non resident ones are taxed on income

sourced from Uganda.

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Residence of a Company

Chargeable Income and Tax Deductions

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Tax is imposed on chargeable Income.

Chargeable income of a company is derived byadjusting the accounting profit before tax by theallowable and non-allowable deductions as prescribedby the Income Tax Act.

Non-allowable deductions are added back to theprofit before tax while allowable deductions aresubtracted.

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Determination of Chargeable income

Allowable expenses to arrive at chargeable income are

prescribed in Sections 22-38 of the ITA Cap 340 as

follows:

Expenditure and losses wholly and exclusively

incurred in the production of income included in the

gross income for that year of income

Bad debts written off – subject to Sect. 24(2)

Training expenditure that is directly relevant to the

persons’ employment or business

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Allowable Deductions

Expenses incurred prior to the commencement ofbusiness that would have been deductible if incurredafter the date of commencement i.e. 25% over 4years “start up costs”

Interest paid on borrowings made to generatebusiness income

Interest expenses for a company belonging to a groupare limited to 30% of EBITDA and can be carriedforward for 3 years.

Capital losses incurred on disposal of business assets

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Allowable Deductions cont’d...

Scientific research expenditure incurred in the

course of carrying on a business

Repair expenses for property occupied or used in the

production of business income

Expenditure incurred during the year to acquire

depreciable assets costing less than Ugx 1,000,000

(50 currency points)

Charitable donations –not exceeding 5% of chargeable

income.

Capital allowances.

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Allowable Deductions Cont’d…

Capital allowances and Tax

Depreciation

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A person is allowed a deduction for the depreciation

of the person’s depreciable assets.

Depreciable assets are classified into four classes as

set out in Part I of the Sixth Schedule of the Income

Tax Act with depreciation rates applicable for each

class as specified in that Part.

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Tax depreciation

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Tax depreciation rates – 6th Schedule

A person who places an item of eligible property into service

for the first time outside a radius of 50km from the boundaries

of Kampala during the year of income is allowed a deduction

for that year of an amount equal to 50% of the cost base of the

property at the time it was placed into service.

Eligible property is P&M wholly used in production of income

but excludes motor vehicles; appliances ordinarily used for

house hold purposes; office or household furniture, fixtures &

fittings.

A person who places a new industrial building in service for the

first time during the year of income is allowed a deduction for

that year of an amount equal to 20% of the cost base of the

industrial building at the time it was placed in service.

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Initial allowance – Sec.27A

Industrial building allowance Sec 29 - is 5% of thecost of the building after deducting initial allowanceon a straight line basis.

The same allowance applies to approved commercialbuildings whose construction commenced on or after1/07/2000.

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Industrial building deduction

A person who has incurred expenditure in acquiring an

intangible asset a deduction in each year of income

during the useful life of the asset calculated according

to the following formula –

A/B

Where;

A - is the amount of expenditure incurred; and

B - is the useful life of the asset in whole years.

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Intangible Asset deduction

The disallowable expenses are highlighted in sections22(2) of the ITA Cap 340 as follows:

Any expenditure or loss incurred by a person to theextent that it is of a domestic or private nature;

Any expenditure or loss of a capital nature, or anyamount included in the cost base of an asset;

Any expenditure or loss which is recoverable underany insurance, contract or indemnity;

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Disallowable expenses

Income tax payable in Uganda or foreign country;

Any income carried to a reserve fund (provisions) or

capitalized in any way;

The cost of a gift made directly or indirectly to an

individual where the gift is not included in the

individuals gross income;

Unrealized foreign exchange losses

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Disallowable expenses Cont’d…

Any fine or similar penalty paid to any government or

political subdivision of a government for breach of

any law or subsidiary legislation;

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Disallowable expenses Cont’d…

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Illustration - Determination of chargeable

income (Tax computation)

Capital Gains Tax

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Capital gains (w.e.f 1 April 1998)

Capital gains are gains arising on disposal of a

business assets.

It is calculated by subtracting the cost base of the

asset from the consideration received for the

disposal.

Capital gains are taxed with other business income at

30%

A loss arising on the disposal of a business assets is

the excess of the cost base of the asset over the

consideration received for the disposed asset. It is

tax deductible

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Capital Gains Tax

Tax Administration and its

Procedures

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The Income Tax Act requires that a tax payer’s

method of accounting conforms to the Generally

Accepted Accounting Principles.

A taxpayer may account for tax purposes either on a

cash or accrual basis. Changes can only be approved

by the Commissioner.

For an accrual basis, the amount is treated as

incurred or payable when the events that determine

the liability have occurred.

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Tax Accounting Principles

Adjustments resulting from change in accounting

method must be made in the year of income

following the change.

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Tax Accounting Principles

Fillings and Due dates of submission of

Tax Returns

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Provisional returns. A provisional return should be filed by the end of

sixth month after commencement of a year of

income.

An amended return (if required) should be filed by

the end of the accounting period.

Provisional tax returns are based on the projected

chargeable income for a year of income

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Fillings & due dates

Final Returns These are filed by the end of sixth month after the

end of the year of income.

Where a person is unable to file the return by the

due date, he can apply for extension of time to

furnish a return.

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Fillings & due dates Contd…

Payment of corporation tax Section 16(8) (c) requires a taxpayer to file a

provisional return with the Commissioner by the duedate for the payment.

1st Installment by end of sixth month aftercommencement of the year of income;

2nd and last installment payable by the last day ofthe year of income.

Final tax- where final tax (per accounts) exceedsprovisional tax paid, the excess is payable by the duedate of filing the final self assessment return (sixmonths after year end).

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Fillings & due dates Contd…

Assessments, Penalties, Objections and

Appeals

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Tax Procedure Code Act, 2014, is the legal framework intended to consolidate tax procedures.

Self assessments- voluntary compliance.

Administrative assessments- failure to furnish a self assessment, possible non-compliance, additional assessment amending a tax assessment.

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Assessments and Penalties

Section 48 of the TPCA- failure to furnish a return attracts Penal tax of 2% per month or Ugx 200,000 whichever is higher.

Interest -Simple Interest is payable on unpaid tax at a rate of 2% (Sec 136).

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Assessments and Penalties cont’d…

A person who disputes an assessment may by notice

in writing to the Commissioner, object to the

assessment.

The notice should state precisely the grounds of

objection to the assessment.

It should be received by the Commissioner within 45

days after the date of service of the notice of

assessment.

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Objections & appeals

The Commissioner may;

- amend the assessment in accordance with the

objection; or

- amend the assessment in the light of the objection

according to the best of his/her judgement; or

- refuse to amend the assessment.

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Objections & Appeals Cont’d…

In-other words, the Commissioner may allow or

disallow the objection and must communicate the

objection decision within 90 days of receipt of the

objection lest the tax payer elects to treat the

Commissioner as having made a decision to allow the

objection as lodged.

A taxpayer can apply for review of the objection

decision to the Tax Appeals Tribunal (TAT) within 30

days after being served with the objection decision.

Decision of the TAT may be appealed to the High

Court within 30 days after service of the decision.

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Objections & Appeals Cont’d…

Double Taxation Agreements

(DTAs) and Transfer Pricing

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Uganda has entered into double tax treaties with

Denmark, India, Italy, Mauritius, the Netherlands,

Norway, South Africa, United Kingdom and Zambia.

DTAs avoid double taxation of the same income by

allocating taxing rights to a particular jurisdiction.

DTAs also provide for reduction of WHT rates for

payments such as dividends, Interest, management

fees.

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DTAs

Transfer pricing Regulations were introduced in July

2011, which in principle follow the OECD guidelines.

In addition to transfer pricing documentation for

cross border transactions, Uganda also requires

documentation for local.

The purpose of Transfer Pricing Regulations is to

ensure that Uganda gets its fair share of tax. They

require that related party transactions should be at

arms-length. In other words, Transfer Pricing

Regulations demand that related parties deal with

each other the same way they would relate with

independents.

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Transfer Pricing

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Presentation by;

Mr. Juma Buli and

Miss. Florence Kabagumya

Tax Compliance and Advisory Services

BDO EAST AFRICA ADVISORY

SERVICES LIMITED

6th Floor Block C, Nakawa business Park

Plot 3-5 New Portbell Road Nakawa

P.O Box 9113 Kampala

Email: taxuganda@bdo-ea.com

The information contained herein is of a general nature

and is not intended to address the circumstances of any

particular individual or entity. Although we endeavored to

provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date

it is received or that it will continue to be accurate in the

future. No one should act on such information without

appropriate professional advice after a thorough

examination of the particular situation

Disclaimer