UGANDA, Kampala | Real Muloodi News | In this article, we explain the three significant changes made to the Uganda Income Tax Act that will impact the income of individual and company real estate businesses.
The Amendment of Section 22 of the Income Tax Act of Uganda
Rental Income Tax Rate and Allowable Deductions/Expenses
Under last year’s legislation, individual and company landlords had different tax rates and allowable deduction amounts. This has been simplified, and both are now charged at the same rate.
All taxpayers will now be charged at a rate of 30 per cent tax on rental income earnings, while allowing 75 per cent as deductible/allowable expenses and losses. After factoring in the deductions, you are left with a 7.5% effective tax rate.
In previous years, the rental income tax rate for individuals was 20%, with only 20% allowed for deductible expenditures. This means the effective tax rate used to be 16.5%.
Whereas the tax rate has not changed for companies, they are now capped at 75% for allowable deductions; previously they could claim 100% of all losses and suffered by the company in generating rental income in a financial year, and potentially pay no taxes at all.
What Does This Mean for Me?
For individual landlords, the new legislation is most definitely in your favour; you now have a tax advantage of approximately 57% compared to the previous tax year.
If you are a non-individual (company) taxpayer and your expenditures are above 75% of the total rental income, you will now have a greater tax liability (to a maximum of 7.5%).
Let’s look at a tax scenario to illustrate the changes: Say you earn an annual rental income of UGX 100 million and your rental expenditures are UGX 80 million:
| Item | Individual | Company | ||
| Tax Year: | Previous Years | FY 2021/22 | Previous Years | FY 2021/22 |
| Allowable Deduction: | 20 million | 75 million | 80 million | 75 million |
| Income after Deduction: | 80 million | 25 million | 20 million | 25 million |
| Amount of Tax Owed: | 24 million | 7.2 million | 6 million | 7.2 million |
Therefore, in this scenario, if you are an individual, you will be better off by UGX 16.8 million under the new legislation. Whereas if you are a company, your tax liability will be UGX 1.2 million more this year than in previous years.
Industrial Building Allowance
The deduction for the depreciation of an industrial building that qualifies for initial allowance has been deferred to the next year of income. Therefore, in the year of investment, you can only claim an initial allowance, and from year two, you will be eligible for an industrial building allowance.
So if investors are looking at using industrial buildings for statutory purposes, such as an approved hospital, they can now safeguard short-and long-term tax optimisation.
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