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For long, many domestic or indigenous investors have argued that the reason they struggle is because only foreign investors and firms benefit from a slew of incentives from government.
That appears to be far from the truth, according to Uganda Investment Authority (UIA) the chief investment promotion agency of the government
For starters, UIA defines a domestic investor as “a citizen of the East African Community partner state; a company incorporated under the laws of an East African Community partner state in which the majority of the shares are held by a person who is a citizen of an East African Community partner state; or a partnership in which the controlling interest is owned by a person who is a citizen of an East African Community partner state.
With that out of the way, lets look at the incentives that a domestic investor can benefit from depending on the sector they are in.
Agro-processing
1. 100 percent exemption from tax on income from agro-processing
2. 100 percent exemption on expenditure on scientific research.
3. 100 percent exemption on training expenditure
4. Tax holiday for the first 10 years on export of finished consumer and capital goods.
5. Exemption on export processing zone on imported raw materials and intermediate goods, machinery and equipment, spare parts for exclusive use in the Free Zone.
6. Exemption from customs duty on plant and machinery
7. Accelerated deductibility of initial allowance in respect of plant and machinery, The provision grants a one-off accelerated tax depreciation allowance on the cost base of the property at the rate of 50% to persons who invest in plant and machinery outside the boundaries of Kampala.
8. Accelerated deductibility of initial allowance in respect of industrial buildings. The provision grants a one-off accelerated tax industrial building allowance on the cost base of the property at the rate of 20% to persons who use the new industrial buildings for the first time.
Mining value addition
100% Cost recovery on exploration, development and production.
100% deduction of Scientific research expenditure
100% tax allowable on training costs
Indefinite cash relief of VAT (Deemed VAT) on supplies by the contractor.
Indefinite VAT exemption on other inputs to mining not covered under the deemed/cash relief.
Machinery and spare parts for direct and exclusive use in mining, are exempted of all import duties under the fifth schedule of the East African Community Customs Management Act.
Industrial parks development
10 years tax exemption for foreign investors for leasing or renting an industrial park/free zone with a minimum investment capital of USD 50million.
10 Years tax exemption for domestic investors for leasing or renting an industrial park/free zone with a minimum investment capital of USD 10million.
10 years tax exemption on VAT for any developer of the industrial park on the following (No VAT on any payment for feasibility studies, design and construction services; Earthmoving equipment and machinery; construction materials).
Accelerated deductibility of initial allowance in respect of plant and machinery, The provision grants a one-off accelerated tax depreciation allowance on the cost base of the property at the rate of 50% to persons who invest in plant and machinery outside the boundaries of Kampala.
Accelerated deductibility of initial allowance in respect of industrial buildings. The provision grants a one-off accelerated tax industrial building allowance on the cost base of the property at the rate of 20% to persons who use the new industrial buildings for the first time.
Exempting the supply of earth moving equipment and machinery for development of free zones and industrial parks. The provision exempts the supply of earth moving equipment and machinery for development of an industrial park or free zone to a developer of an industrial park or free zone.
Related
Exempting the supply of construction materials for development of industrial parks. No excise duty is charged on Construction materials for development of industrial parks or free zones
The non-tax incentives include:
Securing land for agricultural development (Commercial farming and value addition); facilitating investors to access infrastructure development in the Industrial parks; and providing policy advocacy to investors to support investment decision, example, through the Presidential Investor Roundtable (PIRT).
Conditions for accessing incentives
The conditions for accessing facilitation, tax incentives and non-tax incentives include:
1. Acquisition of Investment licence and certificate from UIA;
2. Meeting a minimum capital requirement for $ 50,000 for local investors;
3. Meeting a minimum capital requirement for $ 250,000 for foreign investors;
4. Investing in value-adding projects;
5. Using at least 70% of local raw materials;
6. Employing 70% Ugandans or East Africans who, in total, consume 70% of the wage bill;
7. Investing 50 million in the development of Industrial Parks (relates to foreign investors);
8. Investing 10 million dollars in the development of Industrial Parks (relates to domestic investors);
9. Investing 300,000 dollars in manufacturing around Kampala, (relates to domestic investors);
10. Investing 150,000 dollars in manufacturing, in upcountry areas in Uganda
Conclusion
Tax incentives and non-tax incentives are available to both foreign and domestic investors. The benefit for domestic investors is that they can access the tax incentives with a lower minimum capital requirement.
Secondly, the domestic investors can equally access non-tax incentives like land in the industrial parks, facilitation for infrastructure needs and policy advocacy for conducive environment.
Thirdly, domestic investors whose income is derived from exportation of finished consumer and capital goods qualify for 10-year income tax exemption if 80 percent of their production is exported to markets beyond the East African Community.
Fourthly, domestic investors involved in agro-processing qualify for a one-year income tax exemption. Import duty on plant and machinery for agro-processing is also exempt. All inputs for manufacturing in agro processing are duty free (zero-rated).
Fifthly, domestic investors qualify for 100 percent deductible allowances on cost of training Ugandans and cost of research into new technologies. For example, when paying taxes (filing returns) this cost is deducted.