Uganda Amends VAT & Digital Tax Rules for 2025

July 24, 2025

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Earlier this year, the Ugandan government announced that it would amend tax rules, where the primary measure was to repeal the repeal of the 5% Digital Services Tax (DST) introduced in 2023, and the implementation of a 15% final withholding tax on income derived by non-residents from digital services provided in the country.

On June 30, 2025, Uganda's President enacted several tax law amendments, including amendments to the Income Tax, VAT, Excise Duty, Stamp Duty, and Tax Procedure Law.

Impact on Taxable Persons

Amendments to the Income Tax Law introduce a targeted exemption from the Digital Service Tax (DST) for non-resident entities that provide digital services to their associates within Uganda. Therefore, intra-group transactions are exempt from DST. However, these transactions remain taxable under other sections of the Income Tax Act, typically triggering a 15% withholding tax instead. Therefore, while the 5% DST may not apply, a withholding tax could still be levied.

Regarding the VAT Law, enacted amendments extend the list of exempt institutions from VAT to include United Nations-related Agencies and specialized agencies, as well as the International Atomic Energy Agency (IAEA). Additionally, the amendments redefined descriptions of exempted supplies, including changes to the listing of deep cycle batteries and the introduction of biomass pellets, while also repealing the exemption for billets. Furthermore, amendments added aircraft supply to the list of zero-rated supplies.

In the area of excise duties, amendments introduced a mechanism for remission of duties on goods that are damaged, expired, or obsolete. Taxable persons who meet the criteria and provide necessary documents may either reduce their future excise liabilities or offset existing tax obligations.

Conclusion

While some changes may present benefits for businesses operating in specific sectors, such as renewable energy and manufacturing, changes to the DST may contribute to increased tax burden for non-resident businesses providing digital services to related parties. Therefore, non-resident businesses should carefully determine the extent to which the new DST and withholding tax rules affect their business operations in Uganda.

Source: EY

What is the new tax rate on digital services in Uganda for non-residents?

Uganda replaced the 5% Digital Services Tax (DST) with a 15% final withholding tax on income earned by non-residents from digital services provided in the country.

Are intra-group digital service transactions exempt from the new Ugandan tax?

Yes, digital services provided by non-residents to their associates in Uganda are exempt from DST, but may still trigger a 15% withholding tax under other income tax provisions.

What VAT exemptions were introduced in Uganda’s 2025 tax amendments?

The amendments added VAT exemptions for United Nations-related agencies, the International Atomic Energy Agency, and adjusted the list of exempted and zero-rated supplies.

What are biomass pellets and how are they treated under Uganda’s VAT law?

Biomass pellets are now recognized as exempt supplies under the amended VAT law, supporting cleaner energy initiatives in Uganda.

What is the change in VAT treatment for aircraft supplies in Uganda?

Aircraft supply has been added to the list of zero-rated VAT supplies, allowing sellers to reclaim input VAT on related expenses.

How does Uganda handle excise duties for damaged or expired goods under the new law?

Businesses can apply for remission of excise duties on damaged, expired, or obsolete goods, potentially reducing future liabilities or offsetting existing tax obligations.

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