Withholding Tax in Uganda

by BJ

Question 1:
Is it possible to reclaim withheld tax?

Answer 1:

Yes it is! Under the following circumstances, you will be able to reclaim withheld tax:

1) You will be entitled to reclaim withholding tax, if you only earn employment income and you suffer withholding tax on imports.

2) If the total tax you have paid in a particular financial season exceeds the total tax payable, you can reclaim the excess income paid.

Be that as it may, Uganda Revenue authority (URA) has provisions for exempting a tax payer from paying withholding tax. URA issues the tax payer with a withholding tax exemption certificate, if you fulfil certain conditions.

A tax payer requesting to be exempted from withholding tax applies to URA and after a vetting process, URA can either grant the tax payer with the certificate or not.

The conditions under which a withholding tax exemption certificate may be issued include:

i) If the applicant is a registered tax payer.
ii) If the applicant has been paying taxes for the last 3 years.
iii) If the applicant is tax compliant.

Note: The withholding tax exemption certificate is renewable every after a period of 6 months.

Question 2:
How much is the withheld tax?

Answer 2:
Withholding tax is deducted from a payment (income) to a payer.

Withholding tax is a form of income tax deducted at source by one person upon effecting a payment to another.
The withholding agent (person effecting the payment) is supposed to make the payment of tax.

The payer must remit to the Commissioner General the tax withheld on or before the 15th day of the
month following the month in which the payment subject to withholding tax is made.
However, for promoters or non resident or sports entertainers, tax withheld must be paid within 5 days after
the performance or not later than the departure date from Uganda of the non resident.

The Income Tax Act Cap 340 s 124 specifies that if a withholding agent fails to withdraw the tax from payments made,
they become personally liable for the tax.

The withholding agent is required to keep the records of payment and withholdings for 5 years.

Cases where a person effecting a payment is regarded as a withholding agent and the percentage of income to withhold:

1. Withholding agent: Employer income

Tax withheld: All tax due on the employee’s employment

2. Withholding agent: A resident payer of interest
Note: this does not apply to;

i) Interest paid by a natural person.
ii) Interest paid to a financial institution.
iii) Interest paid by a company to an associated company.
iv) Interest paid which is exempt from tax in the hands of the recipient e.g. interest paid to a listed institution or an exempt organization is payable tax free.

Tax withheld: 15% of the gross amount of interest payable.

3. Withholding agent: A resident person who pays management or professional fees to a resident.
Note: applicable only if the professional is not registered for VAT.

Tax withheld: 6% on the gross amount of the payment.

4. Withholding agent: A resident company which pays a dividend to a resident shareholder.
Note:
i) this does not apply where the dividend income is exempt from tax in the hands of the shareholder.
ii) For an individual the 15% withholding tax is final tax while for a company the gross dividend receivable is aggregated with other income for tax purposes.

Tax withheld: 15% of the gross amount of the payment.

5. Withholding agent: A resident person who pays royalties.

Tax withheld: 15% of the gross amount of payment to non resident person.

6. Withholding agent:
i) Government of Uganda.
ii) A government institution.
iii) A local authority.
iv) Any company controlled by the Government of Uganda, or
v) A designated person in notice by Ministry of Finance.
vi) Any company in which the Government of Uganda has interest
Paying an amount or amounts exceeding one million shillings, in aggregate, to a person in Uganda for supply of goods or services

Tax withheld: 6% of the gross amount of the supplied or imported goods or services.

7. Withholding agent: A person making an international payment.
Note: where a person enters into a contract with a non resident for the provision of services in Uganda or
where the payment to the contractor will amount to income sourced in Uganda,
the resident person must, within 30 days of the date of entering into the agreement,
notify the Commissioner, in writing, of:
i) The nature of such agreement,
ii) The likely duration of the agreement,
iii) The name and postal address of the non resident person, and
iv) The total amount of the contract

Tax withheld:
Dividend-15%
Interest-15%
Royalty-15%
Natural resource payment-15%
Management fee-15%
Business entertainment-15%
Sports performance-15%
Services contract-15%
Ship operating-2%
Chartering or air transport operating-2%
Transmitting messages by cable, radio, optical fibre or satellite communication-5%