Tax Guide for Small Businesses in Uganda

• What's considered a small business?
• How do small businesses get taxed?
• How much will my small business be taxed?

What's considered a small business?

In Uganda, MSMEs (Micro, Small and Medium Enterprises) can be defined in the following table with the statistics.

Small businesses have a turnover of between 10 Million UGX and 150 Million UGX. They can have a number of employees between 5 to 49 employees. The taxpayer who falls under this criteria is referred to as a presumptive taxpayer.

How do small businesses get taxed?

Based on the residence, there are two ways of applying taxation on the businesses in Uganda: Resident and Non-resident businesses.

Resident Business: For a person to be a resident of Uganda; they need to have a permanent address of Uganda. The person is required to have spent 122 days in Uganda in the two consecutive years (122 days each year) or is required to have spent a minimum of 183 days in one year in Uganda.

For the companies to be resident Ugandan companies, they need to match the following criteria: If the business was created or established in accordance with Ugandan legislation.

• If at any point throughout the income year, the corporation exercises management and control in Uganda.
• If a fiscal year for the business includes the majority of its operations in Uganda.

So, a resident business must pay taxes on all of its worldwide revenue. (All geographic sources of income for a resident corporation are taxed.)

Only earnings that come from Ugandan sources are liable to Ugandan income tax for non-resident businesses.

Calculating the taxes

For the companies with a gross turnover between 10 Million UGX to 50 Million UGX: Fixed tax rates along with some variable tax rates are levied on the income, depending on the available accounting data.

For the resident companies with a gross turnover between 50 Million UGX to 150 Million UGX: The amount of income tax due is calculated using a combination of fixed amounts and turnover rates.

If a presumptive taxpayer wants the taxes to be calculated on the profits in place of their turnover, they can apply in writing to the commissioner of the domestic taxes, stating their reasons for doing so. They need to make the financial statements for their business too. After applying to the commissioner, they are subjected to 30% tax rate on the chargeable income (Chargeable income can be calculated as annual gross turnover less the permitted deductions under Income Tax Act)

But the residents who work in the fields of medicine, dentistry, engineering, professional services, public entertainment, public utility, or construction are not included in this group.

In Uganda, there are no regional, local or district Income taxes.

Tax-Exempt Entities 

Organizations such as trade unions, associations of employees, employers associations or some associations founded to promote agriculture, mining, tourism, manufacturing, commerce and industry, and amateur sporting associations; are free from paying taxes in Uganda.

There is no alternative minimum tax system to the one mentioned above.

Permanent Establishment (Branch)

In Uganda, the concept of a Permanent Establishment (PE) is also referred to as a Branch. A branch (PE) is a place where an individual conducts their business. Now in Ugandan ITA (Income Tax Act), there is no definition of Permanent Establishment (PE) but the branch is defined (CAP 340, Ugandan ITA) as:

• A location where an individual conducts their business through an agent (not the general agent, who works independently for the regular business).
• A location where someone has installed and is using heavy apparatus for around 90 days or more.
• A location where a person is building, assembling or installing any project for around 90 days or more. Even the location where such projects are managed or supervised by the agent.

How much will my small business be taxed?

The taxpayers calculate their taxes and taxable incomes themselves. It is referred to as the self-assessment system. However, the revenue officials review the taxpayer’s estimates and can send them for further audits.

Small Businesses can calculate their taxes as per respective brackets of the turnovers:

• Between 5 Million UGX to 20 Million UGX: They have to pay a straight amount of 1,00,000 UGX as taxes.
• Between 20 Million UGX to 30 Million UGX: 2,50,000 UGX or 1% of the gross turnover (whichever is lower).
• Between 30 Million UGX to 40 Million UGX: UGX 3,50,000 or 1% of the gross turnover (whichever is lower).
• Between 40 Million UGX to 50 Million UGX: UGX 4,50,000 or 1% of the gross turnover (whichever is lower).

(The above tax rates are also subjected to the nature and location of the business)

If the taxpayers gross turnover is between 50 Million UGX to 150 Million UGX the income tax rate is either 1.5% of the gross turnover or the specified amount in the Income Tax Act of Uganda .

No tax credit is allowed to the presumptive taxpayers. The expenditure and the losses cannot be deducted from the calculation of the taxable amount. Presumptive taxes are the final taxes. Businesses cannot use these tax credits to reduce their other tax liabilities either. But there are two exceptions where the presumptive tax credits can be used to reduce the liability. First, if the tax was withheld for the sales made. The second exception is where the sum was deposited as a provisional tax by the presumptive taxpayer.

The businesses that fail to pay their taxes are penalized by the authorities. The penalty is the higher of 2% of tax calculated or ten currency points per month for the time outstanding.

(A currency point in Uganda is equal to twenty thousand shillings.)