Tax Guide for US Expats Living and Working in Uganda
Who Is Liable For Income Taxes in Uganda
Residents are subject to tax on worldwide income. Nonresidents are taxable on Ugandan-source income only.
Individuals are considered resident in Uganda for tax purposes if they meet at least one of the following conditions:
- They maintain a permanent home in Uganda.
- They are present for 183 or more days in the tax year. The tax year runs from 1 July to 30 June.
- They are present for an average of 122 days in the tax year and the two preceding tax years.
- They are employees or officials of the government of Uganda posted abroad during the tax year.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Employment income includes wages, salaries, vacation pay, sick pay, payment in lieu of vacation, directors’ fees, commissions, bonuses, gratuities, and entertainment or other allowances received for employment. Employment income also includes most benefits in kind, including employer-provided car, housing and stock options. Travel allowances are taxable if they are deemed to be excessive.
Education cash allowances provided by the employer to all of the employer’s local and expatriate staff are taxable for income tax purposes and social taxes. However, the allowances are not subject to social taxes if the employer pays directly the school fees to the school or college, or reimburses the actual fees paid by the employee.
A nonresident is subject to income tax on employment earnings if his or her employer is resident in Uganda or has a permanent establishment in Uganda. Income derived from services performed outside Uganda is exempt from tax.
Self-employment and business income. Business income includes the following:
- Trading profits
- Gains from disposals of business assets, shares of profits or partnership interests
- Professional and management fees
- Insurance compensation and legal damages for loss of profits
Investment income. Dividends received by residents and nonresidents are subject to final withholding tax at a rate of 15%. Royalties are aggregated with other income and are taxed at the rates. Income received by residents from the rental of immovable property is taxed separately at a rate of 20% on net income in excess of U Sh 1.56 million. Net income is defined as 80% of gross rent received. A final withholding tax is levied on interest income received by residents at a rate of 15%.
Nonresidents are subject to withholding tax at a rate of 15% on investment income, income from the rental of real property, management fees, consultancy fees and any payments for services performed in Uganda.
Capital gains. Capital gains derived from the disposal of business assets are subject to tax at a rate of 30%.
Deductions
Personal deductions. No personal deductions are allowed.
Business deductions. Expenses are deductible to the extent they are incurred in the production of income. Identified bad debts incurred in the production of taxable income are also deductible.
Certain plant and machinery qualify for both an initial allowance of either 50% or 75% and an annual capital allowance deduction. The amount of the initial allowance is subtracted from the depreciable cost of an asset. The balance is subject to a depreciation (wear-and-tear) allowance at the applicable rate.
Capital allowances for industrial buildings and certain commercial buildings are permitted on a straight-line basis over 20 years. In addition, industrial buildings qualify for an initial allowance of 20% if their construction begins on or after 1 July 2000. Plant and machinery is eligible for a wear-and-tear allowance using the declining-balance method at rates ranging from 20% to 40%.
Relief for losses. Losses may be carried forward indefinitely to be offset against future profits. In general, losses may not be carried back. However, with respect to long-term construction contracts, a loss in the final year of the contract can be carried backward to offset reported tax profits of previous years.
B. Other taxes
Uganda imposes a value-added tax (VAT) on the sale or import of taxable goods and services. The standard VAT rate is 18%. A reduced VAT rate of 5% applies to sales of residential houses.
Certain goods and services are zero-rated, and others are exempt. Uganda charges import duty on most imports except exempt imports. A traveler is allowed duty-free imports of up to US$500. Effective from 1 February 2005, the East African Community Customs Union (EACCU) consisting of Kenya, Tanzania and Uganda, became operational. In 2008, Burundi and Rwanda were admitted to the EACCU. The EACCU provides for the duty-free movement of goods among member states and a common external tariff (CET) on goods from third countries. The CET is generally imposed at a rate of 0% to 25% on goods imported from third countries into Uganda. However, sensitive products are subject to a duty rate exceeding 25%. Eligible goods from Common Market of East and Southern Africa (COMESA) and Southern African
Development Community (SADC) countries continued to attract preferential treatment for 2009 and 2010. The import duty rate on goods imported into Uganda from Kenya was progressively reduced by two percentage points per year, from an initial 10% in 2005 to 0% in 2010. The EACCU also provides various tax incentives for producers of goods for export.
Uganda charges excise duty on certain items, including spirits, beer, soft drinks, cigarettes and mobile phone airtime.
Estate and gift tax is not levied in Uganda. Net worth tax is not levied in Uganda.
C. Social security
The National Social Security Fund (NSSF) is a statutory savings program to provide employees with retirement benefits. Employees contribute 5% of their total monetary remuneration, and employers contribute an amount equal to 10% of each employee’s total monetary remuneration.
To learn more about the history, culture, economy and other information about Uganda
We have been preparing US income tax returns for US Citizens and permanent residents living in Uganda for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Uganda and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Uganda.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email