Irene Mbabazi Irumba, the Assistant Commissioner Research and Innovation at URA
Uganda Revenue Authority (URA) has dissected the real estate taxation and rates, explaining further what tax policies govern the real estate sector.
During the second week of the eBomba ya Business summit held at URA headquarters in Nakawa, Irene Mbabazi Irumba, the Assistant Commissioner Research and Innovation at the tax body, explains that there are different taxes in the sector. These, she said, come at different rates.
As a nation, Mbabazi, an experienced tax administrator opened her remarks: “we go through taxes which are imposed on income earned and if real estate is earning income, if letting is giving you income, it’s taxable under the income tax (under Section 5 of the Income Tax Act) but also, there are many other taxes along that sector.”
According to Mbabazi, still under the Income Tax, if you sell your asset (could be a property, could be land) that have you have developed, as long as it’s an item that you are using in your business, it is now sold as an asset and once you sell it, “we look at the price for sale, we compare it with the price at which you bought it (cost incurred) and then any difference, could be a capital loss, it could be capital gain.”
She explains that the beauty with income tax is that “we only tax you when you make profits and not when you have nothing.”
If the assets are managed as corporations (incorporated and owned as a company), then corporation tax applies.
Withholding tax applies on the sale of assets, according to Mbabazi.
She explains that “You are required to withhold six percent (you the seller). The beauty with this tax is that you can recover it when it comes to the end of the financial year. It’s not like it’s an additional tax, it’s an advanced tax off what was withheld from you.”
VAT (Value Added Tax)
VAT is another tax. VAT is imposed on commercial property. This includes office space and arcades. Here, 18% on rental income applies.
The other area is Stamp duty, and according to Mbabazi, each time you sell your property or make an agreement, the law requires us to pay stamp duties on that agreement.
“Stamp duty authenticates agreement. If you get into a disagreement, what shows that the agreement is authentic is the stamp duty that you pay,” she explained as property mogul, Sudhir Ruparelia and Judy Rugasira, a property management consultant, listened attentively.
Mbabazi says property tax is on the ownership and it includes ground rate and rates and this, she says, is managed under the Local Governments.
However, she explains that it ranges between 0-12% depending on the area and the rates applicable.
“These are the rates that are administered by the local authorities and they are not based on how much income you earn but by just the fact that you own this property in a particular area. It is like a license,” says Mbabazi.
Speaking earlier, Shirley Kongai, the President of the Association of Real Estate Agents in Uganda said whereas the sector was hit hard by the pandemic, there is hope.
She says that businesses have learnt to live with the pandemic. As a result, she says that businesses have gone creative and embraced online presence, taken on smaller office spaces and accepted to work from home.
She, however, appealed to the government to prioritize the real estate sector and come up with favourable policies to aid investments.
Rugasira and Ruparelia advised against investing in the real estate sector on borrowed money.
“You need to start with some money that you have and stay away from the banks. Otherwise it’s going to cost you, especially if you borrowed money from the banks. Banks will lend you 70% of project development, not final value,” she said.
Ruparelia agreed with her.
He, however, tipped potential investors that: “Real estate is the safest investment. A building or land will remain, with or without inflation. Keeping money in the bank isn’t a good idea. Inflation will eat all your money over a period of time.”