© Martin Malungu

Introduction
Uganda’s investment policy is not only aimed at promoting a liberal environment for investment. It also recognizes investors — both local and foreign — in whatever partnerships they choose to do their business. Basically, business may be conducted by individuals, partnerships, trust companies or branches of foreign companies. A Ugandan company may be public or private, there is no distinction in the names as both are Limited. Companies are governed by the Companies Act, 1964. There is no minimum equity capital requirement for companies.

Private companies are the most common vehicles for operating a business in Uganda. They can have a minimum of two members who do not necessarily have to be Ugandans. A branch of a foreign company may operate in Uganda if it registers with the Registrar of Companies and delivers to the Registrar a certified copy of the Memorandum and Articles of Association and a certified translation in English, if necessary.

The policy also provides for taxation of income derived in Uganda within Uganda. When a resident company derives profits from a business partly inside and partly outside of Uganda, all profits from such business are deemed to be derived from Uganda. Management fees, dividends, royalties and interest paid to nonresidents are subject to a 15% withholding tax which is a final tax.
Resident companies and foreign branches of companies are taxed at the rate of 30% on profits made in Uganda. Uganda has double taxation agreement with the United Kingdom, South Africa, Kenya and Tanzania. Negotiations with Mauritius, Egypt, Zimbabwe, India and Italy are ongoing.

A provisional return of income has to be submitted within six months of the commencement of each accounting period. The tax liability on the provisional return will be paid in two installments, the first being six months from the beginning of the financial period and the final installment at the end of the accounting period.

Dividends are subject to withholding tax: resident rate - 20% and non-resident rate - 15%. Dividend income of residents is included in their taxable gross income, credit being given for the withholding tax deducted. Dividends can be remitted to non-resident shareholders with the approval of the Bank of Uganda.

Under this policy, all companies operating in Uganda must register as an employer with the Uganda revenue department and deduct tax (PAYE) from the remuneration paid to employees. VAT of 17% is charged on the sale of certain goods and the provision of services. There is a limited capital gains tax on the disposal of business assets. Customs and excise taxes are payable on imported goods.
Import duty and sales tax exemption on imported capital and construction goods is not available in Uganda. Duty drawback on inputs used in the production of exports and exemptions for corporation tax, with-holding tax and tax on dividends for periods of three to six years depending on the amount of the investment and if it is in a priority area.

The investor who holds a certificate of approval for externalisation of funds is entitled to externalise funds for the following purposes:
• Repayment of foreign loans and interest.
• Payment of dividends of shareholders resident abroad.
• Payment of royalties and fees in respect of agreements for the transfer of foreign technology and expertise.
• Payment of emoluments or other benefits to expatriate staff employed in Uganda by the investor.
• Externalisation of profits or the proceeds on disposal of assets.

The Investment Environment
Uganda was recently listed among countries with weak policies which discourage foreign investors. According to Mr. Amanda Ellis, the World Bank senior specialist in private sector development, a World Bank Survey carried out in 133 countries on the theme ‘Doing Business in 2004,’ revealed that Uganda is among the countries where the investment environment still makes it difficult to start a business.

Addressing members of the Uganda Investment Authority-Women Entrepreneurs meeting at the Investment House in Kampala in April 2004, Amanda said Uganda, Algeria, Bolivia, Paraguay have more than 15 procedures one has to go through to start a business compared to Australia with only two procedures. Canada, Ireland, New Zealand and Sweden have only three procedures.

The study shows that the average number of procedures to start a business is seven in high-income countries, 10 in upper-middle and 12 in low-income countries. In Uganda, it takes 36 days to register a company and 16 procedures, while closing a business takes two years due to the poor judicial system. Uganda also has laws which prevent companies that have been declared bankrupt from re-starting business.

In a similar trend of events, another study has revealed that Uganda’s investment climate would be good if only government further refines implementation of laws and buying what the investors locally produce. The study, carried out by the Regulatory Best Practice (RBP) programme indicates that out of the 800,000 micro enterprises in the country, 500,000 lost sh1.1m per year due to bureaucracy in government departments in particular, licensing. Government faced huge costs of administering bureaucratic enforcement of laws.

Despite the above revelations however, Uganda retained her status as one of the most attractive investment destinations on the continent. The agriculture, forestry and fishing sectors attracted investments worth $159m in the FY2003/04, making it the leading sector for the first time in 10 years. Uganda Investment Authority (UIA) officials attributed the success of the sector to the big push strategy set up in 2000 which identified agriculture as a sector that could attract more investments. This figure is out of $353m value of investments established in Uganda. Out of the 160 licensed in 2003 employ 9,888 out of the 19,368 jobs created. The UIA Annual Report for 2003, the water and energy sector attracted projects worth $53m employing 943 people while manufacturing came third with 38 projects worth $37m employing 2,519 people.

The North is still investment hub
Northern Uganda, which has been hit by civil war for the last 18 years, is still a potential area for investment. UIA says the Gulu Reconstruction Programme being funded by Department for International Development (DfID), has enabled residents of the region take advantage of the beautiful sceneries and cultural sites to promote tourism. Local investors are also looking for commercial agriculture because of the region’s favorable climate, vast flat land and fertile soils.

E-Government to fight corruption
Introduction of electronic governance (E-government) is one of the ways being adopted by government to curb corruption. However, establishing the new system requires a public/private partnership. Although e-governance is mainly spearheaded by private initiatives, UIA feels government should play a greater role in co-ordinating its adoption and mobilizing local authorities appreciate its relevance.

UIA to set up ICT incubation centre
UIA is carrying out two major studies aimed at establishing the first Information, Communication and Technology (ICT) incubation centre. A total of sh400m has been allocated for the centre which is expected to be ready by September 2004. The centre is part of government’s strategic plan to increase exports by encouraging innovative ideas by Ugandan entrepreneurs in ICT enabled services. These will include call centres, data processing centres and software production. Government has hired DCDM, a Mauritius based consultancy firm to write proposals for setting up the centre. The database would be used to provide investment opportunities, promote joint ventures and new marketing opportunities.

Investment Protection and Promotional Agreements (IPPA)
In addition to the double taxation agreements instituted by government during this FY, Uganda has concluded a number of Investment Protection and Promotional Agreements with the following countries: Sweden, France, Belgium, China, Sudan, Ethiopia and Mozambique. These agreements are aimed at attracting and providing protection to foreign investments.

Conclusion
Uganda’s investment policy framework is provides opportunities to exploit the diversified natural resource base which is very critical to satisfying the growing regional market. But tapping these opportunities will require continued public efforts to improve the micro-economic environment in which the individual firms operate. Inadequate transport, electricity and telecommunications facilities are prominent weak spots. To overcome these and other bottlenecks, there is to modernize the Investment Code and re-orient the UIA firmly towards the global investment trends. A lot of effort should also be made to promote investment into natural resource-based industries for the domestic, regional and international markets.