Insights
Uganda’s Taxation Framework for Infrastructure Projects
Picture by: Kikagati HPP
Article By Festus Akunobera (Partner), Jemimah Mushabe (Senior Associate), and Christopher Percy Mpindi (Legal Assistant).
Infrastructure and energy projects in Uganda, whether structured as public-private partnerships (PPPs), independent power producer (IPP) ventures, or donor-funded works, must navigate a complex and evolving tax landscape. While financing, procurement, and regulatory compliance often receive the most attention during project planning, inadequate attention to tax matters can lead to delays, increased costs, and legal disputes. This article outlines five critical tax considerations that developers, financiers, and contractors should know before breaking ground.
Withholding Tax (WHT): Managing Cross-Border Payments
Infrastructure projects often involve the procurement of goods and services from outside Uganda. Payments made to non-resident entities are subject to withholding tax, which the local payer must deduct and remit to the Uganda Revenue Authority (URA).
The Income Tax Act (Cap. 338) sets out the rules for withholding tax. Section 137 requires any person making payments referred to in Sections 82, 84, and 85 to withhold tax accordingly.
Section 82 imposes a tax on non-residents deriving dividends, interest, royalties, rent, natural resource payments, agency fees under Islamic finance, or management charges from sources in Uganda. Section 84 targets payments to non-resident contractors or professionals providing services under contracts where the primary purpose is the performance of services in Uganda. Section 85 applies to non-resident providers of shipping, air transport, or telecommunications services deriving income from operations in Uganda.
Developers must ensure withholding tax obligations are fulfilled when engaging foreign service providers. Failure to comply may result in disallowed deductions or penalties.
Value Added Tax (VAT): Exemptions, Zero-Rating, and Refund Mechanisms
VAT in Uganda is governed by the Value Added Tax Act (Cap. 344). The law imposes an 18 per cent VAT on taxable supplies, imports (excluding exempt imports), and imported services. Registration for VAT is mandatory for businesses with an annual turnover exceeding UGX 150 million.
Exemptions and Zero-Rating
The Third and Fourth Schedules of the Act list exempt and zero-rated supplies. Exemptions relevant to infrastructure include financial services, insurance, the supply of unimproved land, and the lease of immovable property (with exceptions). Particularly significant for the energy sector is the exemption granted to supplies made to contractors and subcontractors of hydroelectric, solar, geothermal, biogas, and wind energy projects.
Zero-rated supplies such as exports and certain locally milled goods are taxable at 0 per cent. Businesses engaged solely in exempt supplies are not required to register for VAT and cannot recover input VAT, while those involved in zero-rated supplies must register and can claim VAT refunds.
Deemed VAT for Mining and Oil & Gas Projects
For mining and oil, and gas projects, a deemed VAT mechanism applies to qualifying transactions. This arrangement allows contractors and subcontractors to treat VAT as if it has been paid, without making an actual cash payment. The mechanism improves cash flow and eliminates delays associated with refund claims.
Input VAT Recovery
Section 28 of the Act permits VAT-registered businesses to claim credit for VAT paid on inputs, offsetting the amount against VAT collected on sales. Accurate documentation and timely filing are critical to secure these credits and avoid disruption to project cash flows.
Corporate Income Tax (CIT): Navigating Taxable Income and Incentives
Uganda imposes corporate income tax at a standard rate of 30 per cent on chargeable income. A resident company is taxed on worldwide income, while a non-resident company is taxed only on income sourced in Uganda. Chargeable income is defined as gross income minus allowable deductions under the Income Tax Act.
Resident companies with turnover not exceeding UGX 150 million annually are subject to presumptive tax, which simplifies tax obligations for small businesses.
For infrastructure projects, understanding the tax treatment of long-term capital investments is crucial. Questions often arise regarding the timing of income recognition and amortization of capital expenditures. Developers may seek advance tax rulings from the URA to obtain clarity and manage risk effectively.
Double Taxation Agreements (DTAs): Reducing Tax Exposure
Double taxation occurs when the same income is taxed by two jurisdictions. Uganda addresses this risk through Double Taxation Agreements (DTAs), which allocate taxing rights between signatory countries and provide relief against juridical double taxation. Where there is no applicable DTA, it is important to explore whether the conditions for relief against double taxation can be satisfied under the foreign tax credit mechanism provided for under Uganda’s income tax law.
Uganda has concluded DTAs with several countries, including the United Kingdom, India, South Africa, the Netherlands, Norway, Denmark, Zambia, and Mauritius. These agreements generally reduce withholding tax rates on dividends, interest, and royalties and provide mechanisms for tax credits or exemptions.
DTAs are signed by a cabinet minister, typically the Minister of Finance, and carry the legal force of treaties. While they address only direct taxes, they are essential tools for structuring cross-border investments and ensuring tax efficiency. Uganda also participates in international frameworks for the exchange of information (EOI), supporting transparency and cooperation in tax matters.
Project sponsors and foreign investors should evaluate whether treaty protections apply and ensure that documentation is in place to support treaty claims.
Stamp Duty: Contract Registration and Legal Admissibility
Under the Stamp Duty Act, Cap 339, instruments used in financing and commercial transactions are now exempt from stamp duty. Previously, stamp duty was charged on agreements, memoranda of agreement, and mortgages.
Stamping is not merely a formality. Instruments that are not properly stamped may be inadmissible in Ugandan courts and may attract penalties. Project developers must ensure that all financing and project documents are stamped in compliance with the Act, considering both Ugandan law and any foreign governing law provisions.
Conclusion
Infrastructure is built on not only steel and cement, but also smart planning. From project inception to execution, Uganda’s tax framework influences cost structures, compliance obligations, and investor returns. Ignoring tax risks can jeopardise otherwise sound projects. Legal clarity and proactive tax planning enhance bankability, safeguard investor interests, and ensure smoother regulatory engagement. The earlier you engage legal and tax advisors, the fewer surprises you’ll face.
Authors
Disclaimer
This publication is produced by ABMAK Associates, Advocates and Legal Consultants as a news reporting service for our clients and the general public. The information contained herein should not be construed as legal advice. For specific legal guidance or further analysis on the subject matter, please consult a qualified legal professional.