UGANDAN ECONOMIC FREE ZONES INVESTORS BOOSTED WITH 2018 TAX EXEMPTIONS.
Uganda ranked top as the most entrepreneurial country worldwide in the year 2015. This realisation pushed the country to adopt several economic growth policies in the bid to attract and encourage direct foreign and local investment into the country.
At the fore front of the economic growth drive are two investment promotional agencies; the Uganda Investment Authority that has been largely responsible for driving national economic growth and development in partnership with the private sector, secondly the Uganda Free zone Authority that is responsible for the establishment, development, management, marketing, maintenance, supervision and control of free zones and to provide for other related matters.
On 3 April 2018, Uganda’s Minister of Finance, Planning and Economic Development (Minister of Finance) tabled before Parliament several bills that will either break or build different business sectors for the next several years namely;
- Income Tax (Amendment) Bill, 2018
- Value Added Tax (Amendment) Bill, 2018
- Excise Duty (Amendment) Bill, 2018
- Tax Procedure Code (Amendment) Bill, 2018
- Tax Appeals Tribunal (Amendment) Bill, 2018
- Stamp Duty (Amendment) Bill, 2018
- Traffic and Road Safety (Amendment) Bill, 2018
Once the above bills are passed by Parliament and assented to by the President Yoweri Museveni of the Republic of Uganda, they will become law on 1 July 2018.
Investors and Operators of Economic Free Zones are poised to benefit most from the new legislative and economic reforms proposed by the Ministry of Finance. The reforms are hoped to triple the number of directive investment by both foreign nationals and Ugandans alike.
The investment outlook for the fourth quarter of the year 2016/2017 and first quarter of the year 2017/2018 top ranked China, India and closely followed by Kenya, as the biggest foreign investors whose investments in Uganda represented 75% of all 164 projects issued with investments licenses.
Ugandan investors were then recognize for being at the forefront of championing investment, representing a 25% position against all other individual participating countries of the 41 licensed projects then.
The total investment worth for the period then stood at US $ 641 million against both quarterly targets of US $ 200 million which represents an achievement of 320%.
THE PROPOSED BUDGETARY KEY REFORMS
The proposed budgetary key reforms are hoped to triple this further.
The Income Tax (Amendment) Bill, 2018 is proposed to introduce new sections into the current Act to exempt the income of operators and developers in an industrial park or free zone for a specified period of time.
It specifically exempts:
- The income of a new developer of an industrial park or free zone whose investment capital is at least US$200m for a period of 10 years from the date of commencement of construction.
- The income of an operator in an industrial park or free zone or other business outside the industrial park or free zone whose investment capital is at least US$30m in the case of a nonresident or US$10m in the case of a Ugandan citizen, for five years from the date of commencement of business.
The Value Added Tax (Amendment) Bill, 2018: also proposes key reforms that will benefit any operator of an industrial Park, Free Zone, Single factory or other business outside the industrial park or free zone.
This exemption will be in regard to the supply of;
- Services to conduct a feasibility study and design
- Locally produced materials for the construction of a factory or a warehouse
- The supply of locally produced raw materials and input or machinery and equipment.
Excise Duty (Amendment) Bill, 2018: similarly introduces reforms in regard to remission of excise duty on manufactured goods that have been exported.
The proposed reforms will give the Uganda Revenue Authority power, if satisfied that excisable goods have been exported, remit the excise duty chargeable on those goods. This implies that the manufacturer of these products has to provide proof to the commissioner that the goods have been exported before a waiver/remission is granted.
It also implies that for goods for export to qualify for zero rating of excise duty, there must be an application for duty remission to the Commissioner of Domestic Taxes.
The Stamp Duty (Amendment) Bill, 2018: lastly proposes Amendments to Schedule 2 of the Stamp Duty Act, 2014 as follows:
- By substituting for the stamp duty of UGX10,000 (approx. US$3) wherever it appears, UGX15,000 (approx. US$4).
- By inserting immediately after item 60 selected instruments that have been exempted from stamp duty.
These instruments relate to investments in free zones, industrial parks whose investment capital is US$10 million, US$30 million or US$200 million depending on if the investors are Ugandan citizens or operators or developers respectively.
EXISTING INCENTIVES FOR FREE ZONE OPERATORS AND INDUSTRIAL PARKS
The new tax exemption proposed to benefit free zones and industrial parks in Uganda will be in addition to the already existing comprehensive package of incentives for holders of Free Zone Developer, Operator or Manager Licenses which include:
- Exemption from taxes and duties on all export processing zone imported inputs that are for the exclusive use in the development and production output of the business enterprise (raw materials, machinery and spare parts)
- Unrestricted remittance of profit after tax
- Tax holiday for 10 years on exportation of finished Consumer and Capital goods
- Exemption from tax on income from ago-processing
- Exemption from capital gains tax on plant and machinery used in the Free Zones for 5 years and 1 day upon disposal
- Exemption from all taxes, levies and rates on exports from the Free Zones
- Exemption on personal income of a person offering Technical Assistance under a Technical Assistance Agreement
- VAT exemption on selected services and supplies
- A deduction of 50% off the cost base of the property is allowed on eligible property put into service for the first time outside a radius of 50km from the boundaries of Kampala.
- Economies of Scale for the business entities resulting from well-planned Zoning and Clustering of the business activities nine Free Zones
- Warehousing of domestic goods provided that the warehousing facilities of the Free Zone are under-utilized.
- Onsite Customs inspection of buildings, premises, vehicles, vessels and aircrafts entering and leaving the Free Zone
- Free land (based on availability) for development of Free Zones
- Timely turnaround period in securing business registration
- Enhanced Technology uptake
- Timely turnaround period for processing work permits for expatriates
- Business facilitation and aftercare services in the acquisition of secondary licenses, permits and approvals from other Government Agencies
- Timely processing of Secondary Licenses for Applicants
- Serviced physical infrastructure facilities and buildings within the Public Free Zones.
In October 2017 the Uganda Free zone licensed the ninth free zone in Tororo district in Eastern Uganda to China- Africa International Industrial Co-operation Company Limited within Sukulu Industrial Park which Phosphate Fertilizer Plant is posed to create over seven thousand (7,000) direct and indirect jobs by the year 2024.
This being in addition to previously issued free zone licenses to the following companies;
- Arua SEZ in Arua
- Nilus Limited in Jinja
- Uganda Wood Impex Limited in Kalungu
- Royal Van Zanten Mukono and Mpigi Districts in Uganda
- Fiduga Limited Mukono and Mpigi Districts in Uganda
- Wagagai Limited
- Jambo Roses Limited
- Ugarose Flowers Limited
China and Turkey are among the countries that have expressed great interest in setting up free zones in Uganda and willing to participate in different economic activities ranging from ago-processing to mining.
The Uganda Investment Authority a statutory body charged with the establishment of 22 Industrial Parks across Uganda has achieved 10 milestones through the creation of
- Kampala Industrial and Business Park (KIBP) – Namanve KIBP is located in Wakiso, Mukono district, the largest industrial park with acreage of 2,200, the park is fully allocated and operational.
- Luzira Industrial and Business Park is located in Kampala district with Acreage of 70. The park is operational and land is fully allocated.
- Bweyogerere Industrial and Business Park is located in Kampala district with Acreage of 50, This Park is operational and land is fully allocated.
- Jinja Industrial and Business Park is located in Jinja district with Acreage of 182, the park is operational and 90% of the land here has been allocated and investors are in final stages of plan approval.
- Kasese Industrial and Business Park is located in Kasese district with Acreage of 217. The park is available for allocation to prospective investors.
- Soroti Industrial and Business Park is located in Soroti District with acreage of 219, Allocations in this park are going on, so far one factory, Teso fruit factory which is under construction.
- Mbale Industrial and Business Park is located in Mbale district with an acreage of 619, Compensation process still going on which will be followed up by master planning
- Karamoja Industrial and Business Park is located in Moroto Napak with acreage of 417. The master Planning process is ongoing and plans for UDC to establish a cement factory are underway.
- Kashari Agricultural land is located in Mbarara district with acreage of 147.3. The land is available for allocation to potential investors
- Mbarara SME Park this SME Park is located in Mbarara District on an acreage of 12.2, it consists of structures available for letting by SMEs.