Different Types of Property Taxes in Uganda.
If you are a Real estate practitioner, an individual property owner, or a Landlord, it's important you know and understand this article. According to the local Government Act, local governments can charge a percentage not exceeding 12% of the taxable value of the property and a minimum of 2,000 shilling. The taxable value is 74% of the revenue generated by the property, the 26% is considered to be the expenses incurred by the property owner in the coirs of the maintenance of the property. For example, wear and tear, repairs, water bills, electricity and security among others.
PROPERTY TAX DEFINITION
A property tax is a form of tax that is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are one of the major sources of revenue in Uganda.
Under the Local Government (Rating) Act, 2005, Property rate is levied on property or hereditament, that is, ‘’any physical attachment to land or building (industrial or non-industrial) or structure of any kind excluding vacant sites.
It is a tax on all immovable property or buildings, commercially managed like schools, rented houses, rented shops, factories, Hotels, Private and Public Universities and any part of which is used for the purpose of business even if it is owner occupied.
However, property rates should be distinguished from ground rent. Unlike Property rates, Ground rent is a charge on land leased out by the Authority whether developed or not.
TYPES OF PROPERTY TAXES IN UGANDA
- Property tax
- Rental income tax
- Capital Gains Tax
- Withholding tax
- Stamp duty
Property Tax:
Property rates in Uganda are levied by local government councils. Property tax is the oldest tax rate that almost was fading away until the enactment of Local Government (Rating) Act in 2005, when it was revived and became active again. The Act is supplemented by the Local Governments (Rating) Regulations, 2005
The current rating is governed by the Local Government (Rating) Act of 2005, which came into effect on 1st November 2005 and replaced the Local Governments Rates Decree of 1979. This Act provides the mechanism for carrying out the valuation, assessment, billing and collection of rates; and applies to Kampala City Council, municipal councils, town councils and districts. This Act eliminates the monopoly of the Chief Government Valuer and allows local governments to appoint their own choice of qualified registered valuer.
Rental Income Tax:
Rental income is the total amount derived from the lease of immovable property (land or buildings). Therefore anybody who earns rental income must pay tax to Uganda Revenue Authority. It is filed separately.
Rental income tax policy that was revised and amended in the financial year 2017/18 by Uganda Revenue Authority.
The latest and applicable rental tax rates were effective from July 1, 2022, and are as follows;
For individuals, a threshold of UGX 2,820,000 was established, below which tax is nil and above which tax is charged at a rate of 12%. This tax is only associated with landlords and companies investing in rental investments. Every landlord is subjected to paying an annual rental income tax for his property and failure to pay may be forced or imprisoned for less than 6 months or fine of 2 million shillings.
Rental income tax is only paid when a person is letting out their immovable property (land or building) and is earning income from it, but property tax is paid by a landlord for a commercial building (excludes residential), as long as it is occupied, it does not matter even if it is the landlords themselves occupying the property.
And therefore, Rental tax is different from Property tax in a sense that the previous is paid to URA whereas latter is paid to the local government.
Capital Gains Tax / Income Tax:
The capital gains tax is the tax that is paid on the profits that you obtain once you sell any kind of asset like a property or land, or from an investment in the Uganda. Capital gains arise when you sell an asset for more than you originally paid for it.
There are two kinds of assets in the Income Tax Act:
- A depreciable asset and
- A business asset
Whenever the sale value is greater than the price you paid for the investment/asset for its acquisition, capital gains tax will be paid on that difference, the profit.
Capital gains are included in and taxed together with the business income at a rate of 30%. There is no separate capital gains tax. Capital gains arise on disposal of non-depreciable business assets as well as sale of shares.
Withholding Tax:
According to the Uganda Revenue Authority, Withholding tax (WHT) is a form of income tax that is withheld at source by one person (withholding agent) upon making payment to another person (payee). This tax is deducted at source and remitted to URA in advance by the withholding agent. The law stipulates the persons who are required to withhold the tax and the persons from whom the tax is withheld. This depends on the nature and the circumstances of the transaction.
KEY DEFINITIONS
Withholding agent: A withholding agent also known as a player is a person legally obliged to withhold tax on payment.
A payee: A payee is a person from whom tax is withheld before being paid.
A person: A person includes an individual, a partnership, a trust, a company, a retirement fund, a Government, a political subdivision of government and a listed institution
Any person buying land, a house or any piece of property purchased primarily for business use is subject to the tax. This tax policy should be withheld at the point of making the payment, whether cash or in any other form.
Individuals also incur withholding tax on payments of interest made to them. The withholding tax is at a rate of 15%. However, individuals are not obligated to withhold tax on payments made by them to taxable persons.
Withholding tax is also incurred at a rate of 15% on dividends received by individuals.
However, if the dividend is received from a listed company, the withholding tax incurred is 10%.
Withholding tax is also charged on the importation of goods into the country. The tax charged is at a rate of 6% on the value of goods imported. Individuals are required to maintain records of the withholding tax paid on imported goods.
Tax at 6% is also deducted on receipt of payment from the government of Uganda, a government institution, a local government, or designated withholding agents for supplies exceeding UGX 1 million.
For more details on Withholding taxes and how t is calculated, please visit the URA portal at https://www.ura.go.ug/resources/webuploads/INLB/WITHHOLDINGTAX08_12_2021.pdf
Stamp Duty Tax:
Stamp duty is a form of tax executed and or applies on all transfers, including transfer of shares and property. Stamp duty of 1.5% applies to all transfer of titles in Uganda. Stamp duty of 2% applies on exchange of property. The value of the property is determined by the government chief valuer.
Stamp duty is fees paid to the Government to authenticate documents and make them legally binding in courts of law. 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.
Who is required to pay stamp duty on land, and does it apply to all land tenure systems such as mailo, freehold, and leasehold?
In the case of land, stamp duty is paid in the name of the buyer of the land, and in the case of leasing, it is paid in the name of the person the land is leased to. This tax applies to all land tenure systems in Uganda.
The person paying Stamp duty is required to have a Taxpayer Identification Number (TIN), and if they don’t have one, they should apply for it with URA.
Effective 6th December 2021, URA made it a requirement for buyers and sellers of land where the value of such land is UGX 10 million and above to have Taxpayer Identification Numbers (TINs) if the land transaction involves a Company, it is mandatory to have a TIN even if the amount is below UGX 10 million.
When transferring land, you are required to submit a signed consent form, passport photos of the seller and buyer, national ID, mutation form – in case of subdivision, and a payment registration slip dully paid.
