UGANDA, Kampala | Real Muloodi News | Uganda’s real estate sector has long been viewed as one of the country’s most promising economic pillars, but industry analysts warn that the current rental tax system may be slowing that momentum.
Despite continued demand for housing and commercial space, stakeholders say the tax structure—especially for companies—creates financial pressure that could weaken long-term growth.
Recent data underscores the increasing activity in the sector. Mortgage uptake grew by 33 percent, rising from USh526 billion in 2022 to USh702 billion in 2023, according to the Uganda Bureau of Statistics.
In the 2023/24 financial year, corporate income tax contributed USh434.5 billion to government coffers, while rental income tax generated USh41.26 billion. The figures point to a vibrant investment landscape, yet they also raise questions about whether the tax framework is overburdening corporate property owners.
How the Rental Tax System Works
Uganda levies rental tax on income generated from leasing immovable property. For individual landlords, the 2022/23 reforms simplified the regime significantly. Individuals earning less than USh2.82 million annually are exempt from rental tax; those earning above that threshold pay 12 percent on income exceeding the limit.
Corporate landlords, however, face a more restrictive system. The law allows companies to deduct only 50 percent of their gross rental income as expenses, regardless of their actual costs. The remaining 50 percent is taxed at 30 percent. Any expenses that exceed the allowable 50 percent cap cannot be carried forward to subsequent years, even when they reflect genuine operational costs.
This provision was introduced to curb excessive deductions that, according to policymakers, were lowering taxable corporate income. But real estate investors argue that the limitation does not reflect the true cost structures of operating rental properties, especially for companies that finance construction through high-interest commercial loans.
The Cost Pressure on Corporate Landlords
Consider the example of a commercial property developer that spent USh2 billion constructing a building. Over one year, it generated USh200 million in rental income. Yet its expenses—including mortgage interest, routine maintenance, broker commissions, and depreciation—totaled USh140 million.
Under the current law, only USh100 million of these expenses qualify as deductions. The remaining USh100 million is treated as taxable income, leading to a tax bill of USh30 million. In effect, the company is taxed on income it did not earn due to the statutory cap.
Industry players note that with commercial bank lending rates averaging 18 to 20 percent, mortgage interest payments often represent the most significant cost for property developers. However, interest is not exempt from the 50 percent cap. Because of this, real estate companies say they face structural financial strain, particularly during periods of high inflation or slow occupancy.
Multiple Layers of Taxation
In addition to rental income tax, property owners also pay Local Service Tax and ground rent, depending on the jurisdiction. These local charges operate independently of national taxation and often result in multiple layers of tax on the same property asset. Many landlords ultimately pass these expenses to tenants, contributing to rising rental prices in urban areas such as Kampala, Wakiso, and Entebbe.
A recent amendment to the Income Tax Act for the FY25/26 period introduced a significant exemption for individuals transferring property into companies they control. The exemption removes capital gains tax for such transfers, supporting efforts toward structured asset management and preventing land fragmentation.
While this reform has been welcomed by families seeking to consolidate property holdings, analysts note that the existing rental tax cap diminishes the financial advantages of keeping property under corporate structures. As a result, some property owners hesitate to formalize their real estate under companies, even though corporate management offers clearer succession planning and governance.
Calls for Adjustment
Sector experts are urging policymakers to reexamine the rental tax framework. One proposed change is allowing full deductibility of mortgage interest or excluding interest payments from the 50 percent cap. Advocates argue that this would better reflect the realities of real estate financing and encourage more corporate investment in rental housing and commercial developments.
Others recommend a broader review of the rental tax provisions to align them with government efforts to expand formal property ownership, stimulate construction, and increase affordable housing supply.
Uganda’s real estate sector supports thousands of jobs, provides housing to a growing urban population, and contributes significantly to national revenue. But industry leaders warn that if companies are continually taxed on income they do not earn, investment could slow, affecting both developers and tenants.
As the government works to strengthen revenue mobilization without compromising growth, stakeholders say achieving balance in rental taxation will be essential. A more flexible and realistic expense-deduction framework, they argue, would sustain the sector’s expansion and secure its long-term contribution to the economy.
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