The property rates tax in Uganda is a crucial source of revenue for local governments, providing funding for essential public services like road construction and maintenance, water supply, sanitation, and waste management. The tax is calculated based on the value of the property and the services provided, with rates varying depending on the property's location and size.

According to the Local Government (Rating) Act of 2005, as amended by the Local Government (Rating) Regulations of 2006, property rates are imposed on "hereditaments", any physical attachment to land or buildings (industrial or non-industrial), excluding vacant plots. This tax applies to immovable properties or buildings used for commercial purposes, including schools, rental houses, shops, factories, hotels, and universities, even if the property is owner-occupied.

It is important to differentiate property rates from ground rent. While property rates are a tax on immovable property used for business purposes, ground rent is a fee levied on leased land, whether developed or undeveloped.

Section 6(1) of the Local Government (Rating) Act stipulates that the owner of the property is responsible for paying property rates. Therefore, any individual or entity owning a building used for commercial activities, including rented residential properties, is obligated to pay the tax.

Certain properties are exempt from property rates under the Act and its amendments. These exemptions include:

1. Official residences of the President or traditional/cultural leaders
2. Properties used exclusively for public worship or as residences for religious leaders
3. Cemeteries or crematoriums
4. Properties dedicated solely to charitable or educational institutions of public character, funded by endowments or voluntary contributions
5. Properties used exclusively for outdoor sports or recreation
6. Properties owned by missions or organizations entitled to privileges under the Diplomatic Privileges Act
7. Properties belonging to organizations exempt from taxes under international treaties or conventions
8. Properties owned by institutions with which the government has contractual obligations preventing the imposition of taxes or fees.

By paying property rates, property owners actively contribute to the development of their communities, ensuring that essential services are continuously provided to residents.

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Rental Income Tax.

Rental Income refers to the total rent earned by a person in a given year from leasing immovable property (land and/or buildings) located in Uganda. This income is subject to Rental Income Tax, an important obligation for property owners generating rental revenue.

To comply with Rental Income Tax regulations, property owners must complete an annual return of rental income, including supporting documents such as lease agreements or rental receipts issued during the year. All sources of rental income must be fully declared for the income year, which runs from 1st July to 30th June, or a substituted year. The return should be submitted to the Uganda Revenue Authority (URA) within six months after the end of the relevant tax year.

Rental income tax must be paid by the due date, typically at the end of the month following the quarter in which the income was earned. Failure to meet these obligations may result in penalties and fines. The tax rates differ based on the taxpayer's status: individuals pay 12% of their chargeable income, partnerships are assessed according to individual partners' sharing ratios, and companies are taxed at a rate of 30% of their chargeable income.

Expenses claimed as deductions must be verified by the URA, and only those directly related to generating rental income for the company are eligible. Additionally, taxpayers are entitled to a tax credit for any Rental Income Tax paid provisionally or in advance during the year. However, this credit can only be offset against the rental tax liability since rental income is taxed separately from other income sources.

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Capital Gains Tax.

In Uganda, capital gains tax (CGT) applies to profits made from the sale of non-depreciable business assets such as land, buildings, commercial properties, and shares. Capital gains are taxed in the year in which the taxpayer realizes the gain or loss. For individuals, profits from the sale of business assets are added to business income and taxed at individual income tax rates, while gains from shares or commercial buildings are taxed as property income at the applicable rates.

The capital gains tax rate in Uganda is currently 30% of the profit from the sale of assets, which can be significant, particularly for high-value properties. This tax applies to both residents and non-residents. However, there are certain exemptions, such as on inherited property or assets held for more than five years. Investors are advised to seek professional guidance to ensure they meet their tax obligations and take advantage of any available exemptions.

In addition, certain disposals are exempt from capital gains tax. These include transfers of assets between spouses, transfers as part of a divorce settlement or separation agreement, reinvestment of proceeds from an involuntary disposal within one year in a similar asset, and the transmission of an asset to a beneficiary upon the death of the taxpayer. Gains from these transactions are not taxed, and any losses are not deductible.

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Local Service Tax.

Local Service Tax in Uganda is imposed on the salaries, wages, and incomes of individuals in gainful employment, aiming to generate additional revenue for service delivery. This tax is regulated by the Local Government (Amendment) No. 2 Act of 2008, which allows local governments to levy, collect, and enforce additional taxes to create new revenue sources for their operations.

Local Service Tax serves as a vital revenue stream for local governments, enabling them to provide essential services to their communities. It applies to property owners and their employees within the jurisdiction of the local government, with rates that may vary based on the employee's location. The revenue collected from this tax is allocated to funding key services such as road maintenance, waste management, and other public amenities that benefit the community.

Typically, the local government council sets the tax rate, and property owners and their employees are required to pay the tax annually. It is crucial for property owners with employees subject to Local Service Tax to understand their tax obligations and seek professional advice to ensure compliance with local regulations. This awareness helps maintain the integrity of local service delivery and supports the overall development of the community.

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Value Added Tax (VAT).

Value Added Tax (VAT) in Uganda is an indirect tax on consumption, applied to the value added at various stages of the supply chain for taxable goods and services. Taxable supplies refer to goods or services provided by individuals or businesses registered or required to register for VAT. These supplies can either be standard-rated, attracting 18% VAT, or zero-rated at 0% VAT. However, exempt supplies fall outside the scope of VAT.

To register for VAT, a business must have an annual turnover of taxable supplies exceeding UGX 150 million or UGX 37.5 million in any three consecutive months. For property owners, if a property is used for commercial purposes or as a service apartment and generates income exceeding these thresholds, the owner is obligated to register for VAT and apply VAT to rental income.

In real estate, undeveloped land is VAT-exempt, while developed land, where structures or utilities have been added, attracts VAT at the standard rate. If a property is sold as a going concern, VAT is not applicable, provided the following conditions are met: both the buyer and seller must be VAT-registered, the nature of the business must remain unchanged post-sale, and the Commissioner General must be notified in writing within 21 days of the sale.

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Property Rates Tax.

Property Rates Tax in Uganda is governed by the Local Government (Rating) Act of 2005, the Local Government (Rating) Regulations of 2006. Under the Local Government (Rating) Act, property rates are levied on any physical attachment to land or buildings, whether industrial or non-industrial, excluding vacant land. This tax applies to all immovable properties or buildings that are commercially managed, such as schools, rented houses, shops, factories, hotels, and private or public universities. Even properties occupied by the owner are subject to the tax if part of the building is used for business purposes.

All residents of a Local Government benefit from essential services provided by the Local Government, including road construction and maintenance, street lighting, garbage collection, environmental conservation, and health initiatives like anti-malarial programs. These services, though not always directly visible, are crucial for the community. Therefore, property owners are expected to contribute to these services through statutory payments like property rates.

According to Section 6(1) of the Local Government (Rating) Act, the responsibility for paying property rates lies with the owner of the property being assessed. This means that anyone owning a building used for commercial purposes, including rented residential properties, is required to pay the property rates tax.

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