Simple Tax Guide for Americans in Uganda
US Expat Taxes - Uganda
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Uganda for over 8 years. Our clients hail from all parts of the country - Kampala and Gulu, Lira and Mbarara, Jinja and Bwizibwera.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. 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 calendar year as is standard in Egypt for U.S. tax purposes). You must, however, 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 form 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.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Ugandan Tax System for the American Expatriates.
Uganda personal income tax rates are progressive to 30%.
Income (Shs) Rate of Tax
0 - 1,560,000 Nil
1,560,000 - 2,820,000 10% of the amount over Shs 1,560,000
2,820,000 - 4,920,000 Shs 126,000 + 20% of the amount over Shs 2,820,000
Over 4,920,000 Shs 546,000 + 30% of the amount over Shs 4,920,000
Income tax in Uganda is levied on the worldwide income of resident individuals and on the Uganda source income of non-resident individuals.
Who is not required to file a Return of income?
- A non-resident person i. whose income derived from sources in Uganda has been subjected to withholding tax as a final tax
- A resident individual whose gross income consists exclusively of employment income derived from a single employer and from which full tax has been withheld under Pay As You Earn (PAYE) system.
- A resident individual whose total chargeable income for the year of income is subject to zero rate of tax i.e., not exceeding Shs.1,560,000 a year).
Is employment income earned from sources outside Uganda taxable?
Foreign-source employment income derived by a resident individual is exempt from tax if the individual has paid foreign income tax in respect of the income. Recognise that a resident individual is treated as having paid foreign income tax on foreign-source employment income if tax has been withheld and paid to the revenue authority of the foreign country by the employer of the individual.
Withholding tax is a method of collecting income tax. Withholding tax is collected either at the point of payment by the payer (withholding agent) or at the point of importation (withholding tax is payable by every person who imports goods into the country at a rate of 6% based on the Customs Value [Cost, Insurance and Freight]) unless the person is exempted from withholding tax.
Uganda Corporate Tax
The standard rate of corporate income tax in Uganda is 30%.
The tax rates applicable to residents and non-residents are as follows:
- for companies (other than mining companies) and retirement funds the corporate income tax rate is: 30%
- for mining companies: 70 - 1500/X where X is the number of percentage points represented by the ratio of the chargeable income to the gross revenue of the company.
. If the rate of tax calculated above exceeds 45%, then the rate of tax shall be 45%
. If the rate of tax calculated above is less than 25%, then the rate of tax shall be 25%
Special rates of tax apply to income from small businesses (i.e. those businesses where the income does not exceed UGS 50m per year). These presumptive tax rates fall in defined bands/ranges of gross income.
Small Business Taxpayers Tax Rates
Schedule for amount of tax payable for purposes of section 4(5) of the Income Tax Act by a taxpayer is:
Gross Turnover Tax
Where the gross turnover of the taxpayer:
exceeds Shs. 5 million but not Shs. 20 million per year Shs. 100,000
exceeds Shs. 20 million but not Shs. 30 million per year: Shs. 250,000 or 1% of gross turnover, whichever is the lower
exceeds shs.30 million but not Shs. 40 million per year: Shs. 350,000 or 1% of gross turnover, whichever is the lower
exceeds Shs. 40 million but not Shs. 50 million per year: Shs. 450,000 or 1% of gross turnover, whichever is the lower
Resident companies are taxable on their worldwide income and gains whereas nonresidents are taxed on income sourced in Uganda. Uganda-sourced income is clearly defined for purposes of the Income Tax Act.
The fiscal year in Uganda runs from 1 July to 30 June. Companies must file a return of income each year by 31 December following the end of the tax year. A different accounting period (referred to as substituted year) can be opted for by seeking permission from the revenue authorities. In such cases, return of income should be filed within six months of applicable year end.
CAPITAL GAINS TAX
Capital gains are added to the income from all other sources and taxed at the rate applicable to that person.
BRANCH PROFITS TAX
Non-resident companies are subject to Ugandan corporate income tax in respect of profits earned from branches in Uganda. In addition, the branch is taxed on the repatriated income rate of 15%.
FRINGE BENEFITS TAX
This is not applicable in Uganda but perquisites to employees are valued as per rules of valuation under the Income Tax Act 1997 and added to the employment income to determine the tax.
Local service tax is levied by local authorities on resident individuals (with a few exceptions) who are above the age of 18 and are in gainful employment with effect from 1 July 2008.
Local Hotel Tax was also introduced with effect from 1 July 2008.
A deduction is allowed for the cost of trading stock disposed of during a year of income. The closing value of trading stock is the lower of cost or market value of trading stock on hand at the end of the year.
CAPITAL GAINS AND LOSSES
Capital gains or losses are taxable only if the asset on which the gain or loss arises is owned by a business and is a non-depreciable asset. This is determined by subtracting the cost base of the asset from the consideration received on sale of the asset.
Cost base of the asset is the original cost to the taxpayer as increased by any expenditure incurred to alter or improve the asset which has not been allowed as a deduction. In case of immovable property purchased prior to 31 March 1998, the taxpayer may substitute the market value of the property as on 31 March 1998 for the original cost of the asset.
Capital gains and losses are added or subtracted from the other income of the taxpayer for that year of income and not taxed separately.
Allowable in full except where a foreign-controlled resident company which is not a financial institution has a foreign debt-to-equity ratio in excess of 2:1 at any time during a year of income. A deduction is disallowed for the interest paid by the company during the year on that part of the debt which exceeds the 2:1 ratio.
FOREIGN SOURCED INCOME
The gross income of a resident person includes income derived from all geographic sources and the gross income of a non-resident includes only income derived from sources in Uganda.
FOREIGN TAX RELIEF
A resident taxpayer is entitled to a credit for any foreign income tax paid by the taxpayer in respect of foreign-sourced income included in the gross income of the taxpayer.
Uganda VAT (Value Added Tax)
The standard rate of VAT in Uganda is 18%. Some types of supplies are zero rated or exempt.
Who is eligible to register for VAT and when?
Eligibility for VAT registration can be considered under the categories below:
- Any person who expects to make taxable i. supplies in excess of ¼ the annual registration threshold i.e. UGX 12,500,000/= (Uganda shillings twelve million five hundred thousand) within a period of three consecutive calendar months is expected to apply for registration immediately on commencement of business;
- Any person who, since commencement of business, has made taxable supplies over a period of three consecutive calendar months in excess of ¼ the annual registration threshold i.e. UGX 12,500,000/= (Uganda shillings twelve million five hundred thousand) is expected to apply for registration within twenty (20) days after the third month of commencing business.
- Any national, regional, local or public authority or body which carries on business activities is expected to apply for registration immediately on commencement of business. Note that the annual registration threshold of UGX 50,000,000/= (Uganda shillings fifty million) is not a requirement for this category.
Turnover is calculated on an on-going basis. Two periods should be considered – the past 3 calendar months and the next 3 calendar months on a month by month basis. A person should ascertain at the end of each trading calendar month the total value of taxable goods and services supplied by all your businesses for the past 3 months. Where the total exceeds UGX12.5 million, and required to register for VAT or if after estimating the total value of supplies for the next 3 calendar months. If you expect it to exceed Shs12. 5 million, then you are required to register for VAT.
What is output tax?
This is the VAT charged to the customer by a taxable person in the course of making taxable supplies. When you are registered, you charge VAT on all the taxable supplies you make. This VAT is your output tax.