By David Rupiny
Uganda Investment Authority (UIA) is the chief investment promotion agency of the Government of Uganda. It was established in 1991 under the Investment Code of the same year.
UIA now operates under the new Investment Code Act of 2019 which charges the Authority with the responsibility of coordinating, encouraging, promoting and facilitating investment in Uganda, as well as advising Government on investment policy and related matters.
Specifically, UIA promotes, attracts, advocates, facilitates, registers, monitors and evaluates the development of all forms of investment and business activities in Uganda. Key is promotion of industries (read manufacturing in this case). In short, UIA’s role is to promote both domestic direct investments (DDIs) and foreign direct investments (FDIs).
Uganda Investment Authority is laser focused on pursuing sustainable industrialisation for inclusive growth, employment and sustainable wealth creation.
Uganda remains the strategic place for investors who seek to pursue the triple bottom line of People, Profit and Planet.
Who is a domestic investor?
The Investment Code Act of 2019 defines ““domestic” as “a citizen of the East African Community Partner State. Under the Code, a “domestic investor” means:
(a) a natural person, who is a citizen of an East African Community Partner State;
(b) 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
(c) a partnership in which the controlling interest is owned by a person who is a citizen of an East African Community Partner State, and holding an investment licence issued in accordance with this Act
Incentives provision in Investment Code Act, 2019
Clause 12 of the Code states that “An investor who, in addition to the qualifications for incentives set out in any other law, meets the following qualifications for incentives and commences operations after the commencement of this Act, qualifies for incentives—
(a) meets the minimum investment capital for the investment as required in the relevant Acts of Parliament;
(b) engages in any of the priority areas specified in Schedule 2 to this Act;
(c) exports a minimum of eighty percent of the goods produced;
(d) provides for substitution of thirty percent of the value of imported products;
(e) seventy percent of the raw materials used are sourced locally;
(f) directly employs a minimum of sixty percent of citizens; or
(g) introduces advanced technology or upgrading of indigenous technology.
Clause 13 of the Code is on issuance of certificate of incentives. It states thus:
(1) An investor who has been given an incentive shall receive a certificate of incentives issued by the Authority.
(2) The certificate shall — (a) state under what law the investor has been given the incentive; and (b) give detailed particulars of the incentives given.
Incentives for investors
The Government of Uganda, through UIA, considers incentives as central to operationalising the National Development Plan III goal of increasing household incomes and improving the quality of life of Ugandans.
The incentives span financial, fiscal and “other” (including regulatory) incentives. The incentives that are available to investors include both tax incentives and non-tax incentives.
The incentives are not giveaways but rather necessary and strategic interventions to catalyse, stimulate and grow investment in the country. The Government of Uganda uses incentives to stimulate both DDIs and FDIs.
An incentive can hold more value than the capital committed initially, with longer-term benefits including raised employment, exports and tax revenue. Incentives are also be used to boost specific sectors of interest for the country.
At a time when all countries are clamouring for investors, in Uganda, the Government uses investment incentives to influence investor’s decision related to site location, that is, to set shop in the country.
A key incentive is the Government of Uganda, through the Uganda Investment Authority, offers serviced land in industrial parks and agricultural lands to domestic investors.
Major incentives offered in the tax code under the different categories include:
Agro-processing
- 100 percent exemption from tax on income from agro-processing
- 100 percent exemption on expenditure on scientific research.
- 100 percent exemption on training expenditure
- Tax holiday for the first 10 years on export of finished consumer and capital goods.
- Exemption on export processing zone on imported raw materials and intermediate goods, machinery and equipment, spare parts for exclusive use in the Free Zone.
- Exemption from customs duty on plant and machinery
- 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.
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).
- 100% tax allowable on training costs.
- 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.
- 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
- Equipment imported duty-free
Non-tax incentives
The non-tax incentives include:
- Securing land for industrial development;
- 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:
- Acquisition of Investment licence and certificate from UIA;
- Meeting a minimum capital requirement for 50,000 dollars for local investors;
- Meeting a minimum capital requirement for 250,000 dollars for foreign investors;
- Investing in value-adding projects;
- Using at least 70% of local raw materials;
- Employing 70% Ugandans or East Africans who, in total, consume 70% of the wage bill;
- Investing 50 million in the development of Industrial Parks (relates to foreign investors);
- Investing 10 million dollars in the development of Industrial Parks (relates to domestic investors);
- Investing 300,000 dollars in manufacturing around Kampala, (relates to domestic investors);
- Investing 150,000 dollars in manufacturing, in upcountry areas in Uganda (relates to domestic investors).
Does the incentives exclude investors?
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.
Focus on domestic investment
UIA has set 2022 and 2023 as years dedicated to promoting domestic investment. Uganda Investment Authority retains a dedicated team – the Domestic Investment Directorate – focused on supporting small-scale and medium enterprises to thrive and scale up. The directorate, amongst other things, pairs SMEs with big local and foreign investors, provides serviced workspaces for them in industrial parks, offers training and other capacity building, etc.
For more information, go to www.ugandainvest.go.ug
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