The main law governing transfer pricing is the ITA. It authorizes the Commissioner General of the URA to distribute, divide or apportion the income, deductions or credits among the parties to a transaction that are associated with or in an employment relationship. This is necessary to reflect the taxable income that taxpayers would have received from a transaction on market terms. In this way, the Commissioner General can determine the source of income and the nature of the payment or loss as income, capital or otherwise. When determining a person`s eligible income, the person is entitled to expenses equal to 20% of their rental income. Rates range from 10% to 40%, depending on the person`s income. A person is a tax resident if they are a permanent resident of Uganda, spend at least 183 days in Uganda over a 12-month period, or are present in Uganda for an average of more than 122 days for three consecutive taxation years. A taxpayer is generally subject to tax on his income from the exercise of his business. Income subject to tax is income earned after deduction of any eligible deduction.
When calculating business income, a taxpayer is generally allowed to deduct expenses and losses incurred to generate income. Investments are generally not deductible. However, depreciation costs are an eligible capital deduction. Depreciable assets are deducted in accordance with the Sixth Annex to the ITA. The tax rate applicable to a person for rental income purposes is 20% of taxable income above UGX 2,820,000. A combination of fixed amounts and turnover rates is used to determine the income tax payable by a resident taxpayer with a turnover between UGX 50 million and UGX 150 million, subject to the availability of accounting records. For taxpayers with a gross turnover of more than UGX 10 million but not more than UGX 50 million, different fixed amounts and tax rates apply, subject to the availability of accounting records. Individuals now have a deduction in terms of accrued interest on mortgages obtained from financial institutions to purchase or build premises that generate rental income.
Residents of Uganda are required to pay income tax on their worldwide income. In addition, non-residents of Uganda whose income comes from sources in Uganda must pay tax. For tax purposes, persons are considered residents of Uganda if they have permanent residence in the country, if they are a Ugandan employee or civil servant seconded abroad, if they remain in Uganda for 183 days outside the tax year, or if they remain in Uganda on average 122 days per year for three consecutive years. Uganda`s main taxes are income tax, both personal and professional, and value added tax (VAT). Compared to other countries in sub-Saharan Africa, which generate an average of about 23 per cent of gross domestic product (GDP) in revenue, Uganda`s taxes are low, accounting for 11.9 per cent of GDP in the 2008-2009 fiscal year. The amendment defines EBITDA as the sum of gross income less eligible deductions, depreciation and amortization. It also defines the term “group” to refer to other individuals as individuals with common underlying goods. Thin capitalization refers to a situation in which a company is financed by relatively high debt relative to equity. Currently, section 25 of the ITA allows for a deduction of interest accrued during the year on a debt instrument, to the extent that the obligation was incurred in the generation of income included in gross income. A resident who makes payments to another resident for certain types of interest payments, rents, royalties or dividends is required to withhold taxes equal to 15% of the gross amount of interest paid.
A tax is also levied on any non-resident who receives dividends, interest, royalties, rents, natural resource payments or administrative fees from sources in Uganda. A withholding tax is withheld by the payer up to 15% of the gross amount before the payment or transfer of the amount. However, this does not apply to income from the activities of a Ugandan branch of the non-resident. The rate can be reduced as part of an applicable DVB-T. Employees who earn income above a certain income limit pay Payroll Tax (Pay As You Earn). Rates range from 10% to 40%, depending on earned income. Independent partnerships are required to submit an income statement. However, it is the partners of the partnership and not the corporation itself who are subject to income tax under the MLCBI. A partnership in Uganda is considered a resident partnership if one of the partners is a resident of Uganda during the year for tax reasons under the ITA. The determination of a resident partnership has nothing to do with the nationality or origin of the partners.
Capital gains are included in the taxpayer`s gross income and measured as business income. Capital gains are taxed at the standard corporate tax rate of 30%. In the case of a venture capital fund, a capital gain is not recognised if the fund is registered with the Uganda Capital Markets Authority and reinvests 50% of the proceeds of its investment in the income year. There is no district, municipal or local corporate tax in Uganda. A resident corporation is taxed on its income from all geographical sources. A non-resident company is subject to Ugandan income tax only on income from sources in Uganda. As with businesses, individuals who are employers are also required to withhold taxes on labour income payments to their employees. This is a final tax for a person who has no other sources of income. Tax credits are available for the WHT suffered. However, the interest tax on government bonds is a final tax.
This interest is therefore not included in the person`s taxable income and no tax credit is granted. Small business taxpayers are subject to income tax, which is calculated as a percentage of the business` income. Sales tax is the final tax and taxpayers in this category are not required to file tax returns. Tax rates vary depending on a company`s turnover. A foreign company doing business in Uganda is subject to ITA tax. It depends on whether this foreign company derives its business income from sources in Uganda. A foreign company operating through a branch is subject to Ugandan corporation tax as well as an additional tax on profits returned to the country of origin or incorporation. Employers who pay earned income to employees are required to pay monthly contributions under Uganda`s National Social Security Fund Act. The employer makes a standard contribution of 5%, while the employee pays a contribution of 10%, which is deducted from the employee`s paycheque at the time of payment.
The gross income of a resident partner for the income year includes the partner`s share of the partnership`s income for that year, less the eligible deductions incurred to generate that income […].