SETTING UP & OPERATING BUSINESS IN UGANDA

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TYPE OF BUSINESS A business may be conducted by individuals, partnerships, trust companies or branches of foreign companies. A Ugandan company may be public or private, there is no distinction in the names as both are Limited. Companies are governed by the Companies Act, 1964. There is no minimum equity capital requirement for companies. The private company is the most common vehicle for operating a business in Uganda. It can have a minimum of two members who do not have to be Ugandans. A branch of a foreign company may operate in Uganda if it registers with the Registrar of Companies and delivers to the Registrar a certified copy of the Memorandum and Articles of Association and a certified translation in English, if necessary, and certain other information. The accounts of the branch must be prepared and audited annually and a copy of the financial statements must be submitted to the Registrar for registration. Locally registered private companies are also required to be audited, but are not required to submit their annual financial statements to the Registrar of Companies. TAXATION Income derived in Uganda is taxed in Uganda. When a resident company derives profits from a business partly inside and partly outside of Uganda, all profits from such business are deemed to be derived from Uganda. Management fees, dividends, royalties and interest paid to non-residents are subject to a 15% withholding tax which is a final tax. Uganda has double taxation agreement with the United Kingdom, South Africa, Kenya and Tanzania. Negotiations with Mauritius, Egypt, Zimbabwe, India and Italy are ongoing. Tax Rates and Payments Resident companies and foreign branches of companies are taxed at the rate of 30% on profits made in Uganda. A provisional return of income has to be submitted within six months of the commencement of each accounting period. The tax liability on the provisional return will be paid in two instalments, the first being six months from the beginning of the financial period and the final instalment at the end of the accounting period. Dividends and Branch Profits Dividends are subject to withholding tax : resident rate - 20% and non-resident rate - 15%. Dividend income of residents is included in their taxable gross income, credit being given for the withholding tax deducted. Dividends can be remitted to non-resident shareholders with the approval of the Bank of Uganda. Other Taxes All companies operating in Uganda must register as an employer with the Uganda revenue department and deduct tax (PAYE) from the remuneration paid to employees. VAT of 17% is charged on the sale of certain goods and the provision of services There is a limited capital gains tax on the disposal of business assets. Customs and excise taxes are payable on imported goods. Value Added Tax has replaced Sales Tax and Commercial Transaction Levy (CTL) with effect from 1 July 1996. The VAT rate is 17% Individuals Individuals are taxed on a sliding scale. The income of married women is grossed with that of her husband. Annual Income Tax Rates Below Shs 1 560 000 Nil Between Shs 1 560 000 and 2 820 000 10% of amount over Shs 1 560 000 Between Shs 2 820 000 and 4 920 000 Shs 126,000 plus 20% of excess over Shs 2 820 000 Over Shs 4 920 000 Shs 546,000 plus 30% of excess over Shs 4 920 000 INCENTIVES Foreign investors are required to obtain an investment licence. There are no special tax incentives available apart form the following depreciation allowances : Category I Capital allowances These are expenses which are deductible over from the company's income Initial allowances on plant and machinery located in Kampala, Entebbe, Namanve, Jinja and Nyeru 50% Outside Kampala, Entebbe, Namanve, Jinja and Nyeru 75% Start up costs spread over the first 4 years at 25% Scientific research expenditure 100% Training expenditure 100% Mineral exploration expenditure 100% Category II Annual depreciation allowances Class 1 Computers and data handling equipment 40% Class 2 Automobiles, construction and earth moving equipment 35% Class 3 Automobiles, goods vehicles, tractors, trailers, plant and machinery for farming, manufacturing and mining 30% Class 4 Railroad cars, locomotives, vessels, office furniture etc 20% Category III Other annual depreciation allowances industrial buildings and hotels 5% general frameworks (declining balance depreciation) 20% Horticultural plant and construction of green houses (straight line depreciation) 20% Import duty and sales tax exemption on imported capital and construction goods is not available in Uganda. Duty drawback on inputs used in the production of exports and exemptions for corporation tax, withholding tax and tax on dividends for periods of three to six years depending on the amount of the investment and if it is in a priority area. The investor who holds a certificate of approval for externalisation of funds is entitled to externalise funds for the following purposes : · repayment of foreign loans and interest · payment of dividends of shareholders resident abroad · payment of royalties and fees in respect of agreements for the transfer of foreign technology and expertise · payment of emoluments or other benefits to expatriate staff employed in Uganda by the investor, · externalisation of profits or the proceeds on disposal of assets. EXCHANGE CONTROL The foreign exchange market has been liberalised for some time. A new foreign exchange control Act which will formally repeal the Exchange Control Act is in the process of being discussed by Parliament. The new Act will stipulate the circumstances under which restrictions could be temporarily re-imposed. VISA REQUIREMENTS Visitors are categorised as businessmen, holiday makers and visiting friends or relatives. These visitors are given a one month visa which can be renewed to a maximum of six months. Directors of key officials of a company or project will be granted a multiple visa, the duration depending on the circumstances of the work. A special pass is issued to an investor when the visa expires. Expatriate workers are issued with an entry permit valid from one to three years. Wives and children under 21 years old are eligible for dependent s passes. The initial entry permit fee is paid in foreign currency and renewals can be paid in local currency. All foreign employees are required to pay a bond equivalent to the cost of a return ticket to their home country. This bond is refundable.