Taxation of Digital Services in Uganda: Implications for Non-Resident Service Providers
Effective 1 July 2022, non-residents who supply various digital services in Uganda are required to start accounting for Value Added Tax (“VAT”) on these services provided to non-taxable persons in Uganda. The non-taxable persons comprise individual (non-business) consumers of digital services in Uganda.
The non-residents will account for the VAT on a quarterly basis by filing quarterly VAT returns. The first quarterly return will be due by 15 October 2022, 15 days after the end of the first quarter.
Background on taxation of digital services in Uganda
In 2021, Government amended the VAT Act to introduce a requirement for non-residents who supply digital services to non-VAT registered persons to file a quarterly tax return. However, at the time of passing this amendment, Uganda Revenue Authority (URA) had not yet provided an administrative mechanism for the non-residents to file the quarterly returns. This was coupled with several areas of uncertainty around the compliance process that the URA had not addressed which made it impossible for non-resident suppliers to comply.
Subsequently, in January 2022, URA issued a public notice that provided guidance on the filing requirement. URA’s guidance stated that the non-residents would declare VAT by completing the manual form “DT - 2031A - VAT Return for Non-Resident Suppliers” which can be downloaded from the URA portal (www.ura.go.ug). The non-resident is required to fill, scan and subsequently email this manual return to email@example.com for further processing by the URA.
Under this return filing method, the first submission of the quarterly VAT return constitutes an application for VAT registration of the non-resident supplier. Upon submission, URA automatically registers the non-resident supplier for VAT and issues a notice of registration and a Tax Identification Number (TIN) to the respective non-resident. However, at the time of issuance of this public notice, the effective date for the requirement to file the manual return was not clearly established.
In April 2022, URA rolled out a simplified online registration and return filing process for non-resident persons which is accessible through URA’s portal at ura.go.ug>e-services>payments>Quarterly VAT return for non-resident providers. Further, URA extended the effective implementation date of this tax to 1 July 2022, implying that the non-residents will be required to file the return for the first quarter (July to September 2022) and pay the tax by 15 October 2022. The non-resident may either use the manual form or the online option for purposes of filing the VAT return.
How non-residents will determine the VAT payable in Uganda
Non-residents are required to account for VAT on electronic/ digital services supplied directly to a. individual customer in Uganda who is not registered for VAT. The VAT Act defines electronic services to mean the following when provided remotely; Websites, web-hosting or remote maintenance of programs and equipment, Software and the updating of software, Images, text and information, Access to databases, Self-education packages, Music, films and games including games of chance; or Political, cultural, artistic, sporting, scientific and other broadcasts and events including television.
The scope of services listed encompasses several services such as streaming and download of digital content, provision of a digital marketplace and website or other online applications that link buyers and sellers and subscription-based media such as news portals, magazines, and journals, electronic data management provided remotely by non-residents.
It is worth noting that the onus to verify the customer’s registration status i.e., whether the customer is an individual or a non-individual (business) in order to determine whether VAT applies to the supply of services to these respective customers rests with the non-resident.
Such verification shall rely on the customers’ Tax Identification Numbers (TINs) to validate the customers’ registration status. It would therefore be prudent for non-residents to obtain their customers’ TIN details for ease of conducting this check. URA is also in the process of rolling out an Application Programming Interface to make it easy for non-residents to check the tax registration status of their Ugandan customers.
Next steps for non-residents
In Uganda, VAT is a consumption tax, borne by the final consumers. However, the obligation to account for VAT rests upon the provider of the services (the non-resident). It is therefore incumbent upon non-residents to assess the services that they are providing in Uganda, working closely with their tax consultants and in conjunction with the Revenue Authority, to ensure prompt compliance with this VAT obligation.