Here is everything you need to know about the taxes that apply to real estate in Uganda, as of July 1st 2021.
Rental Income Tax
Section 5 of the Income Tax Act provides for the taxation of Rental Income.
What is Rental Income Tax?
Rental Income tax is a tax on the money you earn from the lease or rent of all immovable property (lands and buildings).
Rental income is singled out from other sources of income you earn, and is taxed separately. You must declare rental income independently of any other business income when filing your tax returns with the URA.
Who Needs to Pay?
Anyone who earns rental income. This includes landlords/landladies, rental property businesses, apartment owners, and even those who rent then sub-let a property to someone else.
How Much Do I Pay?
As of July 1st 2021, the Rental Income Tax Rate for individuals and non-individuals (businesses) is 30% of rental income earned.
However, you are allowed to claim up to 75% of allowable deductions for expenditure and losses incurred in generating rental income. These expenses should be supported by invoices or receipts.
After considering the allowable deductions, your effective tax rate can be as low as 7.5%.
What Counts as an Allowable Deduction?
Expenditures and losses incurred by a person, in the production of rent, shall be allowed as a deduction for any year of income. This includes:
- Cost of repairs
- Ground Rent
- Property Rates
- Fees paid to a property manager
- Costs to advertise and market the property
- Utility bills and expenses
- Bad debts
- Interest expenses (i.e. interest paid on loans)
- Capital deductions in form of wear and tear
- Capital deductions and losses brought forward from previous years
- Capital allowances in form of Industrial building at 5% straight line annually is an allowable expenditure but this is not available to rental property which is purely used for residential purposes (this excludes serviced apartments)
- VAT will form part of a given expense and is allowed as a deduction for as long as the proprietor is not registered for VAT. Where the proprietor is registered for VAT, they should be eligible for a tax credit for VAT paid.
Example of How to Compute Rental Tax
Example: A company or individual earns rental income of USh 40,000,000
They are allowed to claim expenses of up to 75% of rental income for the year.
Rental expenses are calculated are as follows:
Chargeable Income = total rental income – total allowable expenses
Therefore, Chargeable Income = 40,000,000 – (75%*40,000,000)
Therefore, Chargeable Income = 40,000,000 – 30,000,000
Therefore, Chargeable Income = 10,000,000
Rental Tax = 30% of Chargeable Income
Therefore, Rental Tax = 30% of 10,000,000
Therefore, Rental Tax = 3,000,000
Rental Income Tax Compliance Requirements
If you are earning rental income, you must:
- Register with the URA for Rental Income
- Declare all of your sources of Rental Income in full for a year of income
- Complete a tax return of rental income for the year of income with supporting agreements, such as a tenancy agreement, or rental receipts issued to tenants(s) during the year
- Submit (furnish) the return ANNUALLY to the URA, through the online platform on the Webportal within six (6) months after the end of the relevant year of income
Penalties can apply for the following:
- Late filing of tax returns
- Failure to maintain proper books of accounts
- Failure to provide information
- Making false or misleading statements
- Understating provisional tax estimates
- Failure to register for taxes and E-Invoices
These penalties can range between USh 200,000 and USh 50 million
Property Rates / Property Tax
Local Government (Rating) Act 2005 as amended, the Local Government (Rating) regulation 2006 and KCC Act 2010.
What is Property Rates / Property Tax?
Property Rates, also known as Property Tax, is a tax on the value of your commercial property. It is different from Rental Income Tax; Rental Income Tax is paid to the URA, whereas Property Tax is paid to the local government, for example, KCCA or Divisions or Municipalities.
(Property rates should also be distinguished from Ground Rent. Unlike Property rates, Ground Rent is a charge on land leased out by KCCA, whether developed or not).
Property Tax applies to any property or building commercially managed, like houses rented to tenants, shops, factories, or any part of a property used for business, even if it is owner-occupied. It does not apply to the residential home that you live in.
Your property value is determined by your property’s estimated rental value (whether it is rented or not).
Who Needs to Pay?
Anyone who owns a building which is used for commercial purposes (including residential rented properties) is eligible to pay.
Property tax does not apply to residential owner-occupied properties. However, it does apply if a property is earning rental income, as the property is therefore considered a business/commercial property.
Vacant land is excluded from property rates.
How Much Do I Pay?
The amount levied annually on a property is usually between 0 and 12% of the ratable value, with a minimum charge of 2,000/=. For KCCA it is 6%.
How do I Pay?
Demand Notes are printed and issued to the property owners indicating the amounts payable for the given property.
Payment can be made by way of Electronic Funds Transfer (EFT) or Bank drafts, or to a Bank of one’s choice upon obtaining a Payment Advise Form (PAF) or through mobile telecom and pay platforms upon visiting the division offices or the Large Tax Office at City Hall. Payments to KCCA can also be remitted electronically via the KCCA eCitie Portal
Property rates shall be paid in not more than two equal installments on such dates, as KCCA may appoint, within the financial year for which it is levied.
Where the owner of the property, upon approval by KCCA, spends money on any infrastructural work otherwise meant to be done by KCCA, this expenditure shall be offset against his or her pending rate.
KCCA may charge and collect interest on any rate which remains in arrears for more than thirty days from the day it becomes payable at the rate of 2 per cent per month for the period the rate remains unpaid.
If a property owner fails to pay his/her property rates due, KCCA will recover these funds together with interest, if any, through the following:
- Recovery by warrant
- Recovery by action
- Recovery from tenants and current occupiers
What happens if I buy (purchase) a property from someone?
Buyer to satisfy himself or herself about arrears:
- It shall be the right of the buyer to demand a certification of arrears from the seller, and if the seller does not produce the certificate, the buyer may inquire from the Authority upon the payment of a prescribed fee.
Prohibition against transfer of property in arrears of rate:
- No transfer of any property shall be registered under any law for the time being in force, for the registration of titles or documents unless a certificate that no arrears of rates are due in respect of that property has been issued by the Authority of the area where the property is situated.
Person liable to notify transfer of the property:
- In the event of transfer of ownership, the liability to pay a rate is also transferred. The person liable to pay the rate shall notify the fact of transfer in writing to the Town Clerk of the Division concerned.
- The person liable to pay the rate shall continue to be liable for the rate until he or she notifies the transfer in accordance with subsection (1) but nothing in this subsection shall affect the liability of the transferee to pay the rate which falls due after the transfer in his or her favor.