Part 3 - Foreign Investment In Uganda

The National Environment Management Authority (NEMA):

This is the principal agency in Uganda with the mandate for environmental management and protection. Within the context of the mining sector, NEMA plays a crucial role in ensuring that all mining activities are conducted in an environmentally friendly and sustainable manner. A key function of NEMA is the review and approval of Environmental Impact Assessments (EIAs), which are a mandatory requirement for obtaining mining licenses for significant mining projects. Mining companies are legally obligated to comply with the provisions of the National Environment Act, 2019, and to strictly adhere to the environmental protection standards established and enforced by NEMA.

The Uganda Revenue Authority (URA) is the government body responsible for the assessment and collection of all forms of revenue, including taxes, fees, charges, and royalties that are payable to the State under the Mining and Minerals Act, 2022. This includes application fees for various licenses, annual mineral rents for granted mineral rights, and royalties levied on the minerals that are produced. Furthermore, the URA is the agency that issues Tax Identification Numbers (TINs), which are a fundamental requirement for engaging in any business activity within Uganda, including the registration of companies and the acquisition of mining licenses.

Established under the Mining and Minerals Act, 2022, the Uganda National Mining Company (UNMC) is a state-owned enterprise with the specific mandate to manage the government's strategic commercial interests within the mineral subsector. UNMC is empowered to undertake exploration and mining operations in instances where private sector entities may be unwilling to do so, and its objective is to optimize the value derived from the state's mineral assets for the benefit of its shareholders, primarily the people of Uganda¹ . The Act grants the State, potentially acting through UNMC, the option to acquire an ownership interest of up to 15% at no cost in any large or medium-scale mining license that is granted after the Act came into effect² . Additionally, the State has the possibility of acquiring a further stake of up to 20% through financial investment.

INVESTMENT LICENSE ISSUANCE IN UGANDA.

After a company has been incorporated in Uganda, it is eligible for an investment license. Provided its capital investment exceeds US$100,000 (Foreign firms). Under the Investment Code Act (Cap. 92), every foreign investor is required to obtain an investment license from the Uganda Investment Authority ("UIA") before commencing business in Uganda. The application for an investment license is addressed to the Executive Director of the UIA in a prescribed form, which contains the name and address of the applicant, proposed business activity, projected fixed capital investment costs over a period of 3 years and the number of jobs expected to be created by the project.

After all required documentation is submied along with the filled form, together with the applicant's bank statement reflecting a minimum balance of USD 100,000 (United States Dollars One Hundred Thousand) on the application, the investment license can be issued.

Required Documentation:

• Copy of the Certificate of Incorporation
• Copy of the Memorandum and Articles of Association
• A brief business plan
• Proof of financial ability to implement the proposed project, i.e., a bank statement or a leer of project support from a bank
• Proof of the proposed physical location of the project.

The license will usually be issued within 3 (three) business days of an application being submied to UIA, provided all the supporting documentation is in order.

Secondary Licenses:

There are some sectors where regulatory approvals from the relevant entities are required before applying for the investment license. Among the sectors include; energy generation, mining, banking, air transport, pharmaceuticals production, education and health.

Requirement for Application:

Section 17 provides for the requirements for application of an investment license, including local content requirements which must be met by every investor before an investment certificate can be issued.³ These are:

• A certificate of registration of the business;
• Business plan which must include: the name of the investment and detailed information on the type of investment; the action plan; the date of commencement of operations; detailed information on raw materials sourced in the country or in the locality where the investment is to operate; detailed information on any financing and assets to be sourced from outside Uganda, including the time frame in which these finances and assets shall be invested; land requirement for the investment; the location of the investment; utilities required for the investment; a market survey; details of the projected technology and knowledge transfer.
• An environmental impact assessment certificate issued in accordance with the relevant laws;
• The projected number of employees;
• A license granted by the business sector in which the investor intends to operate.

Penalties for operating without a license:

The provisions of Section 19 of the Act create a penalty for operating without a license or before registration by the Authority.⁴ Operating without a license is an offence punishable by a fine not exceeding Twenty Million Uganda Shillings or imprisonment not exceeding four years or both. Section 39 creates a penalty for giving false or misleading information and refusing to provide information, as well as refusing entry by an officer or agent of the Authority from Uganda shillings three million, and two years' imprisonment to Five Million Uganda shillings, and five years' imprisonment or both.

Trading license for investors:

Under the Trade Licensing Act (Cap. 101), every person is required to obtain a trade license before commencing business. The application for the trade license is submied to the local authority where business is to be conducted together with the registration documents of the entity, the investment license, the certificate of tax registration, the tenancy agreement for the premises where the business will be operated from and a tax clearance certificate issued by URA confirming that the applicant is tax compliant.

Obtaining Mining Licenses In Uganda:

Uganda's mining licenses derive from the concessionary system. As the term suggests, a concession allows for the private ownership of natural resources. The ownership of the minerals is vested in the mining companies at extraction, subject to the payment of royalties, taxes and other fiscal impositions to the government. The Mining Act provides that no person may explore or prospect for, or retain or mine or dispose of any mineral in Uganda except under, and in accordance with, a license issued under the Act. The various types of mining licenses in Uganda are:

The acquisition of mining rights:

Mining rights in Uganda are principally acquired in 3 main ways. These are the direct acquisition of rights and obligations under a mining license also known as farm outs, farm downs or assignments, the direct or indirect acquisitions of the shares of an entity with a mining license and first come first serve basis where an investor applies for a license from the government for any available mining area. Some countries like Kenya envision in their regulatory regime the use of competitive licensing rounds to give out mining rights. Licensing rounds are, however, largely used in the upstream oil and gas sector.

Mining Agreements:

Mining agreements are also known as Mining Development Agreements ("MDA"). The Mining Act allows the Minister responsible for mineral development to enter into an MDA with any person holding an exploration license or mining lease. The terms included in the MDA include, but are not limited to, conditions relating to:

• Minimum exploration or mining operations to be carried out and the timelines of such operations;
• The minimum expenditure in respect of exploration or mining operations;
• The manner of carrying out the exploration or mining operations;
• The processing, whether wholly or partly, in Uganda of minerals found
• The basis on which the market value of any group found may be determined;
• The financial and insurance arrangements;
• The resolution of disputes through an international arbitration or a sole expert;
• Any other maer connected with the contemplated mining operations. The Mining Act is silent on stabilization clauses in mining agreements and is thus not very clear whether their inclusion can stand legal scrutiny.

For a foreign company seeking to operate within Uganda's mining sector, the journey involves a critical two-stage process: first, the establishment of a legal entity within Uganda through incorporation with the Uganda Registration Services Bureau (URSB), and subsequently, the acquisition of the necessary mineral rights and licenses from the Ministry of Energy and Mineral Development (MEMD) via the Directorate of Geological Survey and Mines (DGSM).

Several key regulatory agencies play distinct and vital roles in overseeing the various facets of this process. These include the Uganda Registration Service Bureau for the initial company incorporation, MEMD and its technical arm, DGSM, for the crucial aspects of licensing and the administration of mineral rights, National Environmental Management Authority for ensuring environmental protection and sustainability, Uganda Revenue Authority for the management of all revenue-related maers, and Uganda National Mining Company for the stewardship of the state's commercial interests within the mining industry.

A thorough understanding of the timelines and the associated costs for both the incorporation process and the acquisition of the requisite mining licenses is key for effective planning and accurate financial budgeting. While the initial incorporation of a company can be achieved relatively quickly, the process of obtaining mining licenses, particularly for larger-scale and more complex operations, can be a more time-consuming and financially demanding undertaking.

Uganda's mining sector undoubtedly presents significant opportunities for foreign investment and growth. However, realizing this potential hinges on foreign companies conducting comprehensive due diligence, diligently navigating the regulatory landscape, prioritizing strict compliance with all pertinent laws and regulations, including those concerning local content and environmental obligations, and fostering constructive and mutually beneficial relationships with both local communities and the government of Uganda.

TAX IMPLICATIONS FOR FOREIGN COMPANIES OPERATING IN UGANDA'S MINING AND NATURAL RESOURCES SECTOR.

A foreign investor looking to conduct business in Uganda would be liable to pay tax in Uganda and would therefore have an obligation to apply to URA for a certificate of tax registration. The Tax Procedures Code Act 2014 (the "TPCA") shows that every person liable to pay tax in Uganda is required to apply to the Uganda Revenue Authority ("URA") for registration. Upon registration, the person is issued a certificate of tax registration. An application for tax registration is made online via the URA web portal. The applicant is required to submit information regarding its legal status, place of business, bank account and contact details.

The tax head a foreign investor would like to register for must be indicated. These include income tax, value-added tax, and import and export duty. If the applicant is a company, URA requires the company to have a tax representative who already possesses a tax identification number before it can be issued with a certificate of tax registration. The tax representative can either be the company's managing director, chief executive officer or any of its directors⁵ . No fees are payable on application for a certificate of tax registration. If URA is satisfied with the information provided by the applicant, the certificate will be issued within 3(three) working days of the application being submied.

Withholding Tax:

Withholding tax ("WHT") of 15% is imposed on every non-resident person who derives any dividends, rent, natural resource payment, interest, royalties and management fees from sources in Uganda. How are the following taxed:

(I) Dividends payable to non-resident persons are subject to withholding tax at the rate of 15%.

(ii) Dividends received from foreign companies are subject to withholding tax at the rate of 15%.

(iii) Interest payable to non-resident persons is subject to withholding tax at the rate of 15%.

(Iv) IP royalties paid to foreign corporate shareholders are subject to withholding tax at the rate of 15%.

Value-added tax ("VAT"):

VAT is chargeable on taxable supplies of goods and services in Uganda and the import of certain goods. The standard rate of VAT is 18%. However, the supply of certain goods and services like unprocessed agricultural produce, financial services and insurance services (health insurance, micro-insurance, re-insurance and life insurance) are exempt from VAT.

It should be noted that branches of foreign companies in Uganda are subject to VAT. This position was buressed by the court in the popular case of URA v. COWE (CA 34 of 2020) , where the Court stated that a branch in Uganda is distinct from its head office overseas and is therefore considered to be a taxable person for VAT purpose, even though they both form part of the same legal entity.

Double Tax Agreements (DTAs):

Double taxation has the effect of taxing foreign income twice: first in the state where the income arises, and second, where the person entitled to such income resides. This is why Double taxation agreements are made between countries. Double taxation agreements are international agreements entered into between governments for the allocation of fiscal jurisdiction. They become part of the tax law of each contracting state, whether by direct incorporation in the domestic law or by direct enactment into that law. The conclusion of a double taxation treaty is, therefore, part of an overall policy of each state to encourage foreign investment or to assist the state's investors to participate in overseas trade and development without undue financial hardship arising from double taxation.

Uganda has DTA's with 9 countries, i.e., Denmark, India, Italy, Mauritius, Netherlands, Norway, South Africa, United Kingdom and Zambia. The purpose of these DTA's is to eliminate double taxation and allocate taxing rights.

Transfer Pricing Rules:

The Income Tax (Transfer Pricing) Regulations set the rules for transfer pricing in Uganda. These seek to ensure that no party enjoys tax benefits as a result of non-arm's-length terms and conditions of a transaction. The Regulations are applicable to transactions between associates where one party to the transaction is located in and is subject to tax in Uganda, and the other party to the transaction is located in or outside Uganda.

What Are The Tax Incentives In Uganda?

A foreign investor who possesses a Certificate of incentives exempting him/her from paying taxes can not be subject to taxation. The certificate can apply to all activities done by the investor. See the case of Capital Finance Corporation Ltd v. URA ⁶ , the appellant was a licensed credit institution with a certificate of incentives exempting it from corporation tax, withholding tax and taxes on dividends for a period of 6 years. URA sought to tax the fees earned by the appellant, and the appellant resisted on the grounds that such income was not liable to taxation. The Court held that the certificate of incentives applied to all activities of the appellant, including the financial consultancy business, and thus exempt from tax.

Once licensed, all investors are eligible for the following tax incentives. However, it should be noted that not every investor is entitled to the tax exemptions. It is only those investors who qualify as investors within the meaning of the Act and also satisfy the conditions therein. Among the tax exemptions include;

(a) Duty and tax exemptions on plant, machinery, equipment and specialized vehicles not available in Uganda and not more than five years old.

(b) Exemption from profit taxation (i.e. corporation tax, withholding tax and tax on dividends) for three to six years, depending on the amounts commied

(c.) Drawback of any duties and sales taxes levied on the inputs used for export production.⁷

(d) Unrestricted repayment of foreign loans and interests; transfer of dividends, royalties or fees; payment of emoluments and other benefits to foreign personnel; and transfer of profits or proceeds on the disposal of assets.⁸

Import/ Export Regulations:

The East African Community Customs Management Act, 2004 (EACCMA), which governs the import and export frontiers in Uganda, is the regional statute enacted by the East African Legislative Assembly. In addition, Uganda has enacted the Excise Duty Act, 2014, which is a duty on imports and exports of goods. The Uganda Revenue Authority (URA) has the mandate to collect taxes, supervise, and implement tax laws in Uganda. The Excise Duty Act, 2014, was enacted, which is a duty on imports and exports of goods.

CONCLUSION AND RECOMMENDATION

Investors are drawn by Uganda's underexploited mineral wealth and emerging oil reserves, and its environment provides accessible natural resources that form the foundation of many small to medium enterprises, particularly in agriculture, forestry, and artisanal mining. The mining sector undoubtedly presents significant opportunities for foreign investment and growth. However, realizing this potential hinges on foreign companies conducting comprehensive due diligence, diligently navigating the regulatory landscape, prioritizing strict compliance with all pertinent laws and regulations, including those concerning local content and environmental obligations, and fostering constructive and mutually beneficial relationships with both local communities and the government of Uganda.

Compliance with Uganda's environmental policies, combined with the adoption of international best practices, will not only safeguard ecosystems but also enhance project credibility and social license to operate. Adherence to labour laws is both a legal obligation and a strategic imperative. The employment relationship must comply with constitutional protections, statutory minimums, occupational health and safety requirements, and local content obligations. Several key regulatory agencies play distinct and vital roles in overseeing the various facets of this process.

Given the complexities of investing in a foreign country, it is recommended that the services of a legal practitioner should be employed so as to navigate the processes effectively by allowing the business to be compliant with extant laws and regulations.

Footnotes

1. Seing up Uganda's National Mining to Boost Sustainable development, https://resourcegovernance.org/sites/default/files/2025-03/NRGI_Uganda_Report_FINAL_28_03.pdf, Accessed on 20th May 2022.

2. Section 178, Mining and Minerals Act 2022

3. 3 Investment Code Act (Cap. 92)

4. Investment Code Act (Cap. 92)

5. Tax Procedures Code Act 2014

6. Capital Finance Corporation Ltd v. URA (Court of Appeal Civil Appeal No: 43 of 2000)

7. Section 26 of the Investment Code 2019

8. Section 33 of the Investment Code

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