Here is everything you need to know about the taxes that apply to real estate in Uganda, as of July 1st 2022.
Contents:
GO TO: Rental Income Tax
- Governing Law
- What is Rental Income Tax?
- Who Needs to Pay?
- How Much Do I Pay?
- What Counts as an Allowable Deduction?
- Example of How to Compute Rental Tax
- Penalties
GO TO: Property Rates / Property Tax
- Governing Law
- What is Property Rates / Property Tax?
- Who Needs to Pay?
- How Much Do I Pay?
- Penalties
GO TO: Stamp Duty
- Who Needs to Pay?
- Does it Apply to All Types of Land Tenure?
- How Much Do I Pay?
- What is the Process of Declaring the Instrument/Document for Stamp Duty?
- What Do I Require to Transfer Land?
GO TO: Withholding Tax
- What is Withholding Tax?
- Who Needs to Pay?
- How Much Do I Pay?
- How Do I Pay
Rental Income Tax
Governing Law:
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?
Prior to July 1st, 2022, the Rental Income Tax Rate for individuals and non-individuals (businesses) was 30% of rental income earned, with allowable deductions of up to 75% for expenditures and losses incurred in generating the rental income. However this has since changed.
As of July 1st, 2022
Individual Taxpayers:
The Rental Income Tax Rate for individuals is 12% of rental income earned, after deducting the threshold of USh 2,820,000.
URA has also done away with having to deduct expenditures for Individuals.
Non-Individual Taxpayers:
The Rental Income Tax Rate for non-individuals is 30% of rental income earned.
Non-Individuals can to claim up to 50% of allowable deductions for expenses and losses incurred in generating rental income (additional expenses can be carried over to the next year of income).
After considering the allowable deductions, your effective tax rate can be as low as 15%.
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
Individual Taxpayers:
Example: An individual earns rental income of USh 40,000,000.
Rental expenses are calculated are as follows:
Chargeable Income = total rental income – threshold
Therefore, Chargeable Income = 40,000,000 – 2,820,000
Therefore, Chargeable Income = 37,180,000
Rental Tax = 12% of Chargeable Income
Therefore, Rental Tax = 12% of 37,180,000
Therefore, Rental Tax = 4,461,600
Non-Individual Taxpayers:
Example: A non-individual (business) earns a rental income of USh 40,000,000
They are allowed to claim expenses of up to 50% of their rental income for the year.
Rental expenses for a non-individual are calculated as follows:
Chargeable Income = total rental income – total allowable expenses
Therefore, Chargeable Income = 40,000,000 – (50%*40,000,000)
Therefore, Chargeable Income = 40,000,000 – 20,000,000
Therefore, Chargeable Income = 20,000,000
Rental Tax = 30% of Chargeable Income
Therefore, Rental Tax = 30% of 20,000,000
Therefore, Rental Tax for the non-individual = 6,000,000
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
- File a provisional tax return on the 3rd month of the financial year for individuals and by Dec 31 of that financial year for non-individuals. This is to prevent the URA from predicting your income and transactions.
- 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
Penalties can apply for the following:
- Late filing of tax returns attracts a fine of 200,000 per month until the day you file
- Failure to pay taxes earns you a penalty of 2% interest per month until you pay the taxes
- 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
Governing Law:
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, regardless of whether you earn rental income from that property or not. It is different from Rental Income Tax; Rental Income Tax is a tax on the income you earn from a rented property which 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.
Penalties
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.
Stamp Duty
Stamp duty is a tax that is levied on single property purchases or documents. Stamp duty fees are paid to the Government to authenticate documents and make them legally binding in courts of law.
Stamp duty on land is paid at the point of transfer of title of the said land from the seller to the buyer, based on the value of the land as assessed by the Chief Government Valuer.
Generally, duty is payable on every document that confers any right or liability upon being created, transferred, limited, extended, extinguished, or recorded.
The documents on which stamp duty is paid are referred to as instruments, and they are listed in Schedule 2 of the Stamp Duty Act as amended. Without stamp duty, such documents are not admissible in court, i.e. cannot be provided as evidence, for example, to prove ownership of the land.
Who Needs to Pay? Does it Apply to All Types of Land Tenure?
The buyer of land is required to pay the stamp duty. In the case of leasing, it is paid by the person the land is leased to. Yes, this applies to all land tenure systems such as Mailo, Freehold, and Leasehold.
How Much Do I Pay?
Stamp duty is currently paid at a rate of 1.5% of the total value of land as determined by the Chief Government Valuer.
However, this value may not necessarily be the same as the actual purchase price paid for the land, since the value of land can fluctuate considerably.
The Government Valuer will periodically research to determine new land values in various locations.
What is the Process of Declaring the Instrument/Document for Stamp Duty?
The taxpayer declares the total value of the land on the URA portal at www.ura.go.ug.
Steps:
- Once on the URA portal, click e-Services and scroll down to Stamp Duty, and complete the Declaration of Instrument form.
- The buyer fills in the details of Section A.
- Under Section B: Type Of Instrument, select ‘Transfer of the total value-Land’ from the dropdown menu and complete the required fields.
- The seller fills in the details of Section C.
After the the sections have been completed, the Taxpayer then submits the Declaration of Instrument and Consent Form to the Chief Government Valuer in the Ministry of Lands, Housing and Urban Development
The Chief Government Valuer values the land signs the Declaration of Instrument and Consent Form, and posts the amount to URA E-tax.
The taxpayer obtains a Payment Registration Form with a Payment Registration Number (PRN) from a URA officer by presenting the declaration form, the transfer form and the signed consent form.
Prior to generating the PRN, the URA officer checks the amount on the consent form to match it with the one in the system. The information in the system (e.g. the buyer and seller’s names, plot and block numbers) should match what is on the forms
The officer confirms that the date on the consent form signed by the Chief Government Valuer doesn’t go beyond 6 months from the time the taxpayer delivers the declaration for the PRN.
What Do I Require to Transfer Land?
When transferring land, you are required to submit the consent form signed by the Chief Government Valuer, passport photos of the seller and buyer, your national IDs, and a payment registration slip dully paid.
In the case of subdivision, you will also need a Mutation Form, which can be downloaded from the Ministry of Lands website.
Withholding Tax
What is Withholding Tax?
Withholding tax (WHT) is a form of income tax that is withheld by a person making payment to another person. The person making the payment deducts the WHT from the amount being paid, and is required to remit the amount to the URA.
Who Needs to Pay?
Any person selling land, a house or any piece of property purchased exclusively or primarily for business use is subject to the tax. This includes land that is used in business to generate income, and land owned by a company, trust or partnership.
However, the person who is buying the ‘business asset’, in this case the land or property, needs to withhold the tax from the amount they are paying to the seller, and remit it to the URA.
How Much Do I Pay?
A resident person who purchases a business asset is under an obligation to withhold tax at the rate of 6 per cent of the gross payment.
Therefore, should one purchase land from a business, company, partnership or trust, one is required to withhold tax on the gross payment paid for the land. The withholding tax is charged at rate of 6 per cent and it should be withheld at the point of making the payment, whether cash or in kind for the land or property.
How Do I Pay?
Upon withholding the tax, the purchaser of the land must file a withholding tax return indicating the details of the seller, the gross amount paid for the land or property, the date of payment, nature of payment, and the amount withheld.
This return must by filed by the fifteenth day of the month following the purchase. Should the purchaser fail to file the return by the due date, he or she is liable to pay a penalty for late filing.
Buyers of land or property should pay particular attention to this clause, as a purchaser of a business assett who fails to withhold tax will be held personally liable to pay to the amount of tax which has not been withheld and/or remitted to URA.
You can however, attempt to reclaim the tax from the seller after having paid it to the URA, at your own expense.