Employers have several tax responsibilities that they must fulfill. These include Pay As You Earn (PAYE), National Social Security Fund (NSSF), Local Service Tax (LST), and other potential taxes such as Withholding Tax (WHT) and Skills Development Levy.

Pay As You Earn (PAYE)

Employers are required to deduct PAYE from employee salaries and remit it to the Uganda Revenue Authority (URA). The calculation of PAYE is based on a progressive tax rate schedule. The deadline for remitting PAYE is by the 15th of the following month.

National Social Security Fund (NSSF)

Employers have a responsibility to contribute to the NSSF on behalf of their employees. The contribution rate is 10% of the employee's gross salary. The deadline for remitting NSSF contributions is by the 15th of the following month.

Local Service Tax (LST)

Employers are also required to deduct LST from employee salaries and remit it to the relevant local government council. The rates for LST vary based on the employee's income level and the local government council. LST should be remitted within four months, no later than the 15th of November.

Other Potential Taxes

Employers may have to withhold tax on certain payments to non-residents, known as Withholding Tax (WHT). Additionally, a 1% levy known as the Skills Development Levy may apply to employers with a large wage bill.

Employee tax deductions in Uganda are primarily categorized into three types: Pay As You Earn (PAYE), National Social Security Fund (NSSF), and Local Service Tax (LST).

Pay As You Earn (PAYE)

PAYE is an income tax deducted from employee salaries. All employees earning above a certain income threshold, currently 235,000 Ugandan Shillings per month, are eligible for this tax. The calculation of PAYE is based on a progressive tax scale, meaning the higher your income, the higher the tax rate.

National Social Security Fund (NSSF)

NSSF is a mandatory social security contribution applicable to all employees in formal employment. The calculation for this contribution is such that employees contribute 5% of their gross salary.

Local Service Tax (LST)

LST is a tax levied by local government councils. The eligibility for this tax varies by local council but generally applies to employed individuals in the area. The calculation of LST is determined by the local council with reference to the Local Service Tax Act. The tax is usually a fixed annual amount or percentage of income.

Additional Notes

Certain types of income may be exempt from PAYE, such as some allowances. Additionally, employees may be eligible for tax relief on specific expenses. For detailed information, it's advisable to consult the Income Tax Act or a tax advisor.

Value-Added Tax (VAT) is a significant consumption tax in Uganda, and it's crucial for businesses to understand its implications for services.

The standard VAT rate in Uganda is 18%. This rate applies to most taxable supplies of services in the course of business in Uganda.

Certain services are zero-rated for VAT purposes. This means no VAT is charged on the supply, but the supplier can still claim input tax on related expenses. Zero-rated services often include the export of services (if the service is demonstrably consumed outside Uganda), international transport services, and specific educational and financial services.

There are also some services that are exempt from VAT. This means no VAT is charged on the supply, and the supplier cannot claim input VAT on related expenses. Exempt services may include medical services, unprocessed foodstuffs, and certain educational services.

VAT Filing Procedures

Businesses that exceed the VAT registration threshold (currently 150 million Ugandan Shillings annual turnover) must register with the Uganda Revenue Authority (URA) for VAT. VAT returns must be filed monthly, and payment is due by the 15th of the following month. Filing and payment are done through the URA's online portal.

Uganda provides a variety of tax incentives to stimulate investment and business activity. These incentives can significantly lower a company's tax liability, making Uganda an appealing destination for both local and foreign investors.

Income Tax Exemptions

Businesses operating within designated Industrial Parks or Free Zones can enjoy a substantial tax advantage. Qualifying companies receive a ten-year income tax exemption on profits derived from their operations. This exemption applies to both developers and operators within the zone, with minimum investment thresholds depending on investor origin (foreign or East African Community citizen) and location (upcountry or Kampala).

Companies that export at least 80% of their finished goods can qualify for a ten-year income tax holiday. This incentive encourages businesses to concentrate on production for international markets and increase Uganda's export earnings.

Other Tax Benefits

Businesses can deduct a significant portion of the cost of qualifying plant and machinery from their taxable income. The rate of deduction varies depending on the location of the investment, with higher allowances available in areas outside of Kampala.

Businesses importing plant, machinery, equipment, and construction materials for their investment project can benefit from exemptions or deferrals on import duties. This can significantly reduce the upfront costs of establishing a business in Uganda.

Companies can deduct up to 100% of training costs incurred for their employees in the year the expense is incurred. This incentivizes businesses to invest in workforce development and improve their skillset.

This is not an exhaustive list of all tax incentives available in Uganda. Businesses are advised to consult with a tax professional to determine which incentives they may qualify for and how to best utilize them.