Nonprofit/non-government organizations serve good causes that complement government and public executions without a profit motive.
The good causes are essentially for particular classes of people like women, children, the youth and elderly, refugees, and with main focus areas including health, education, environment, social and political welfare.
These NGOs run their activities through funding received in form of contributions, grants and donations. It should however be noted that their funding background creates a mistaken assumption of an automatic tax free environment that NGOs are not subject to taxation.
NGOs in Uganda do not have a special tax regime. Whereas their income has relief from income tax, specific tax obligations are not waived/exempted by law – for example withholding taxes on employees and suppliers, stamp duty on legal instruments, all indirect taxes on supplies, services such as utilities; water, electricity etc.
As far as Uganda’s income tax legislation is concerned, NGOs will normally have no income tax liability because of the nature of business they conduct which is nonprofit.
At a practical level, the funding received by NGOs forms their business income. NGOs must therefore take steps to ensure that their funds/receipts are not taxed.
NGOs can apply to the Commissioner General URA for written rulings for recognition as exempt organizations.
Short of this procedure, NGOs cannot claim to be exempted from income tax.
When the NGO has obtained a ruling for recognition as an exempt organization, it will be issued with a certificate of Exemption by the tax Authority.
It should be noted that as an exempted NGO, the NGO must desist from any profitable activities or else, there is risk that evens will be broken and the exempt status will be lost.
Nevertheless, it is advisable that if the organization engages in profitable activities, it should use any profits to fulfill its objectives. Per se the profit should not benefit any private person other than for use in fulfilling the organization’s objectives.
As an exempted organization under Uganda’s income tax legislation does not negate the obligation to file income tax returns. Like other entities (companies, partnerships or trust), the obligation to file income tax returns is mandatory even if no tax is payable.
In conclusion, Taxation of NGOs in Uganda is a complex subject. Any NGO sealed in the misconception that tax is not of much concern for them should foresee this as a risk to their activities in the future.
Lawyer and Tax Consultant at
M/s PHLEB Associated Advocates. Contact: email@example.com