How are Uganda Taxes Treated in the Finacials of an Non- profit Organization /NGO

Uganda’s Income Tax Act provides that an organization is exempt from paying income tax if it falls within the definition of “exempt organization” under Section 2(bb) of the Income Tax Act and has been issued a formal ruling from the Tax Commissioner qualifying it as an exempt organization.

The Income Tax Act defines an exempt organization as a company, institution, or irrevocable trust that is:
a. an amateur sporting association;
b. a religious, charitable, or educational institution of a public character; or
c. a trade union, employees’ association, an association of employers registered under any law of Uganda, or an association established for the purpose of promoting farming, mining, tourism, manufacturing, or commerce and industry in Uganda.

All income of an exempt organization is free from income tax, with the exception of property income received. Rental income of immovable property, however, may be exempt if it is used by the lessee exclusively for the activities of the organization specified in the Act.

In addition, business income received by an NGO that is not related to the function constituting the basis of the organization’s existence is subject to tax (Income Tax Act S 21(f)).

Individuals and legal entities are eligible for tax deductions for charitable contributions to a tax exempt organization listed in Section 2 (bb) (a) and (b) of the Income Tax Act. An individual may claim as a deduction up to 5% of that individual’s taxable income for the year in which the gift is made.

Foreign grants are not subject to VAT. Certain supplies are exempt from VAT, including: unprocessed foodstuffs and agricultural products; educational, medical, dental or nursing services; social welfare services; and medical equipment (VAT Act. Schedule 2, Section 19).

The legislation also makes provision for select zero rated supplies, including: drugs and medicines, and educational materials (Section 24(4) and 3rd Schedule of VAT Act, Cap. 349, 1997).