Tax

• Property income


  Income arising from provision for use or exploitation of property owned by a given person
• Types of property holdings that generate property income

  • Shareholding
  • Copyright/patent/trademark holdings
  • Money holdings
  • Land
  • Buildings
  • Exploration rights
• Forms of property income

  • Dividends
  • Interest
  • Annuity
  • Natural resource payments
  • Rents
  • Royalties
  • Other payments derived from provision, use or exploitation of property
• Gifts derived in connection with the provision, use or exploitation of property


  Considered property income
• Contributions made to a retirement fund by a tax exempt employer

  Considered property income
• Winnings derived from sports betting & pool betting

  Considered property income
• Options for treating property income for tax purposes

  • Aggregating property income under business income
  • Subjecting property income to withhold tax at source as a final tax
  • Separate treatment
• Rental income


  Income from letting out immovable property like land, buildings and other similar properties
• Letting out tangible movable property is not treated as rental income for income tax purposes
• Rental income tax


  Administered following section 5(1) of the Income Tax Act, which states that a tax shall be charged for each year of income and is hereby imposed on every person who has rental income for the year of income
• Rental income of a resident individual


  Not included in the gross income of that person for the year of income, taxed separately
• Rental income of a resident individual from the lease of immovable property outside Uganda


  Included in the gross income as property income and taxable
• Rental income tax for an individual

  Determined by deducting a threshold amount of Ugx 2,820,000 from the annual gross rental income and applying the tax rate of 12%
• Rental income of a partnership


  Shared among the partners and taxed on the partners
• Rental income of a company

  Taxed at a rate of 30% of the chargeable rental income
• Rental income of a person other than an individual or partnership


  Subjected to rental tax at a rate of 30% on its chargeable rental income after having deducted the actual expenses incurred when deriving the income, limited to 50% of the annual gross rental income
• Allowable deductions for rental income


  • Wages and other employers related expenses
  • Rates
  • Repairs and maintenance
  • Mortgage interest
  • Interest paid on a loan to buy service or improve the property
  • Insurance of the property
  • Administrative and management costs, including bad debts
  • Rent paid to a superior landlord, in a case where the property is sub-let
  • Any other expense or deduction allowable within the provisions of the law
• Capital deductions for rental income

  • Wear and Tear in respect of qualifying plant and machinery
  • Industrial building deductions for qualifying building
  • Capital deductions in respect of start-up costs
  • Capital deductions in respect of intangible assets
• Dividends


  A portion of appropriations of profits rewarded to the shareholders for financing company's activities through acquisition of shares
• Dividends are not tax deductible to the paying company
• Taxation of company profits (Business Income) is not connected to taxing the dividends
• Forms of dividends


  • Where a company issues debentures or redeemable preference shares in respect of which the shareholder gave no consideration
  • Where a company issues debentures or redeemable preference shares in respect of which the shareholder gave consideration which is less than the greater of the nominal or redeemable value
  • A distribution upon redemption or cancellation of a share or made in the course of liquidation in excess of the nominal value of the share redeemed, cancelled or subject to liquidation
  • In the case of a partial return of capital, any payment made in excess of the amount by which the nominal value of the shares was reduced
  • In the case of a reconstruction of a company, any payment made in respect of the shares in the company in excess of the nominal value of the shares before reconstruction
  • Amount of any loans, the amount of any payment for an asset or services, the value of any asset or services provided or the amount of any debt obligation released by a company to or in favour of a shareholder of the company or an associate of a shareholder to the extent to which the transaction is in substance a distribution of profits
  • The issue of bonus shares to shareholders
• Dividends paid by a resident company to an affiliate resident company

  Exempt from tax if the company receiving the dividend controls directly or indirectly 25% or more of the voting power in the company paying the dividend
• Dividends paid by a resident company to any other resident shareholders

  Subject to 15% withholding tax on the gross amount, the amount withheld is deemed a final tax to a resident individual. Dividends paid by companies listed on stock exchange to individuals are taxed at a rate of 10%
• Dividends paid by a resident company to a non-resident

  Subject to a 15% tax on the gross amount, the amount withheld is deemed a final tax
• Dividends paid by a non-resident company to a resident taxpayer

  Fully taxable, but can be subjected to a foreign tax credit
• Dividends paid by a building society

  Treated as interest for the purposes of the act
• Dividend income


  No refund of income tax shall be made in respect of the dividend income
• Dividends paid by a resident company to an affiliated resident company


  The receiving company is exempt from income tax on the dividends received, where the receiving and paying companies are affiliates and the receiving company directly or indirectly controls 25% or more of the voting power in the paying company
• This provision prevents the cascading effect of income tax at the corporate levels between companies
• Dividends paid to financial institutions

  The exemption does not apply where the dividends are paid to an exempt institution
• Dividends paid by a resident company to a non-resident person

  Subject to the contents of a double tax agreement, dividends paid by a resident person to a non-resident person are subject to income tax at a rate of 15%
• Dividend paid by a non-resident company to a resident person

  Dividend paid to a resident person by a non-resident company is taxable, but a tax credit can be granted in respect of the dividend income where the shareholder pays withholding tax in the country where the dividends are earned
• Dividends paid by Building Societies

  Any distribution of profits or appropriation to the shareholders of a building society does not constitute a dividend, but is treated as interest
• Dividends paid in form of Bonus Shares

  Bonus share issue does not affect the tax liability of both the shareholder and the company, as it is just a re-organization of company financial aspects by turning reserves or retained earnings into share capital
• Interest income


  A payment, including a discount or premium made under a debt obligation which is not a return of capital, any swap or other payments functionally equivalent to interest, any commitment, guarantee or service fee paid in respect of a debt obligations or swap agreement, or a distribution by a building society
• Source rules for determining if interest income is derived from sources in Uganda

  1. Whether the interest arises from a debt obligation secured by immovable property, or movable property used in Uganda

  2. Whether the payer of the interest is a resident person

  3. Whether borrowing relates to business carried out in Uganda
• Tax treatment of interest income


  A resident person who pays interest to another resident person must withhold income tax on the gross amount of the payment at 15%, except where the interest is paid by a natural person, paid to a financial institution, paid between associate companies, or paid to exempt entities
• Interest income earned by a resident person from a foreign source

  Included in the gross income as either business or property income and is fully taxable, but a tax credit is allowed for any foreign tax paid
• Interest income earned by a non-resident person in Uganda

  Subject to 15% tax on the gross amount of the interest that is deemed a final tax