Uganda has joined the list of countries around the world collecting Value Added Tax (VAT) on electronic services in order to increase government revenue and tap into the digital economy.
Effective 1st July 2021, all non-residents providing electronic services to non-taxable persons in Uganda were required by law to charge VAT of 18% on the service and remit the amount to URA.
These non-taxable persons include consumers in Uganda that are not VAT registered. VAT registered businesses will continue to utilise the reverse charge mechanism to pay this VAT.
The in scope electronic services
The electronic services targeted by URA include services such as web hosting, software and streaming services, online advertising, online gaming and gambling, music and movie streaming, remote program and equipment maintenance, the provision of software and software updates, the provision of images, text, and information, access to databases and self-educational materials.
Other broadcasts and events; including television, subscription-based media such as; news portals, magazines, journals, electronic data management, online data warehousing, file sharing, cloud storage services, supply of search-engine and automated help-desk services.
This means that when a customer in Uganda purchases or pays for any of these services from a company like Microsoft or Google, the company must charge VAT of 18% and remit this amount to URA.
Consumers in Uganda will therefore pay an extra 18% for the value obtained from accessing the content or the service online.
In order to determine if a customer is consuming electronic services in Uganda, the non-resident supplier may consider the customers’ address (residential or postal), internet proxy address, phone number or location of the financial institution from which the payment is made. These should be in Uganda.
Uganda is not the first to implement this charge, more than 70 countries around the world charge VAT on digital services including African countries such as South Africa, Nigeria and neighbouring Kenya.
Countries adopt VAT on digital services to level the playing field between local service providers that are already mandated to charge VAT and the foreign service providers that did not have this obligation before. URA anticipates that this step will generate an extra UGX 5 billion in tax revenue in the current financial year.
How will the VAT be implemented?
VAT on electronic services is provided for under Section 16(2) of the VAT Act so URA is not introducing a new tax but rather implementing a tax that was provided for by law.
In order to aid in implementation and collection, the VAT Act was amended in July 2021 to provide for quarterly filing of VAT returns by Non-resident providers of electronic services.
The Non-resident companies that meet the VAT threshold of UGX 150M are required to register for VAT using URA’s online platform, charge VAT on services provided to Ugandan non-taxable persons and remit the VAT to URA’s bank accounts on a quarterly basis.
Engagement of non-resident service providers
URA has engaged the non-resident service providers to guide them on how the VAT regime will work and their obligations under the law. So far, companies including Amazon, Apple, ACCA, Bolt have registered while others are still undergoing registration like; Meta, Netflix, Microsoft, Google, Zoom and Spotify.
URA has also eased the compliance process by providing non-residents with a simplified online registration and return filing procedure that conforms to international best practices.
Public notices have been published to provide further guidance to stakeholders and government is in advanced stages of enacting regulations. This intended to provide guidance to non-resident suppliers of electronic services in Uganda.
The returns are filed on the 15th day following the end of every quarter. The Non-residents are also required to provide transaction details to URA at the end of every quarter.
Non-residents are not required to appoint fiscal representatives in Uganda for purposes of VAT compliance obligations.
The future, URA together with government will explore ways of taxing the direct income of non-resident digital companies, earned from sources in Uganda.
The author is the Commissioner Domestic Taxes in URA