RENTAL INCOME TAX IN UGANDA

A month back, one busy Wednesday morning, I received a distressed call from my dad. “These URA people have called me saying I owe them taxes. Me I don’t understand these things. How can I owe them taxes when I have been retired for the last 10 years?” He sounded both agitated and confused. I could feel the despair ringing in his voice. To calm him down, I let go of what I was doing and took some time to attend to him. During his last working days, my father had put together his retirement package. This, like for many retiring Ugandans, Includes a few rental properties that are meant to bring in a consistent income to sustain what is left of their stay here on earth. It is therefore shocking to most, when they find out that part of this is supposed to be paid to the authorities in the spirit of giving to Caeser, what belongs to Caeser.

Explaining to dad, that according to the Income Tax Amendment Act of 2021, 12% of all gross income earned from individually owned rental properties is supposed to be paid to Uganda Revenue Authority, was met with the five stages of grief. First denial, then anger, bargaining followed by depression, then finally acceptance. Only 2,820,000/= per annum is the allowable deduction/ threshold for this category of rental income tax. The 12% rate exclusively applies to those who choose to register their properties as individual owners, rather than corporations. This category also includes rental income generated by partnerships, in which case each member of the partnership is subjected to tax, according to their proportional share of the partnership.

In case you choose to go the alternative route, that is to own rental property as a non-individual, the rate is different. For clarity’s sake, non-individuals include companies e.g. Baros Group Limited, Government e.g. Luwero District Administration and Institutions such as Makerere University.  For this type of tax payer, rental income is computed at 30% of gross income, with an allowable deduction of up to 50% of the income for justifiable expenses. This means that if you spend money on items like security, repairs, cleaning, do not lose those receipts because they will come in handy when you are claiming your tax deductions at the end of the year. For commercial properties like industrial buildings, commercial structures, hotels, hospitals and manufacturing plants, you are even allowed a 5% depreciation cost per annum for a period of 20 years. This depreciation cost is computed off the original construction cost of the property.

For those planning to get into real estate investment, it is important to consider these tax implications to optimize your income and also ensure that you are not surprised like my dad, further down the road. Better yet, involve the services of a real estate investment professional to guide you through how best you can structure your investments to extract maximum benefit for yourself and others. To learn more about investing and taxes in Uganda’s Real Estate industry, visit https://www.barosgroupltd.com/

About the author;

Benard Sonko is a real estate investment manager and founder of Baros Group Limited. For comments and inquiries, you can reach him on +256742140251 or info@barosgroupltd.com