Executive summary

In a public notice issued 26 February 2018, the Uganda Revenue Authority's (the URA) Commissioner General made an announcement to suppliers of aid-funded projects and the general public to address the treatment of Value Added Tax (VAT) relating to such projects with effect from 1 March 2018.

The VAT amendment Act 2015, initially considered only tax payable deemed on a taxable supply made by a contractor to a licensee undertaking mining or petroleum operations deemed to have been paid by the licensee to the contractor provided the supply was for use by the licensee solely and exclusively for mining or petroleum operations.

Effective 1 July 2016, this treatment of VAT as deemed paid was extended to taxable supplies made by suppliers and contractors of aid-funded projects.

There has been some lack of clarity in determining who qualifies to provide a supply to an aid-funded project. Accordingly, the URA will issue approval letters, going forward, to specific suppliers confirming qualifying projects and quantities. The public notice states the requirements from suppliers and contractors to enable the URA to make a ruling on qualifying aid-funded projects.

Detailed discussion

Taxable supplies made by a supplier to a contractor executing an aid-funded project

Taxable supplies made by a supplier to a contractor executing an aid-funded project is deemed to have been paid by the contractor provided the supply is for use by the contractor solely and exclusively for the aid-funded project.

The VAT Act defines an aid-funded project to mean a project financed by a foreign government or a development agency through loans, grants and donations.

The VAT amendment Act 2016 introduced VAT deemed paid treatment on supplies made to contractors executing aid-funded projects effective 1 July 2016.

This means that when a supplier makes a taxable supply to a contractor of an aid-funded project, they will raise a tax invoice to the contractor including the full VAT amount, however the contractor shall pay the supply consideration less the VAT. This is because the law deems the VAT on a supply to an aid-funded project to have been paid by the contractor.

The supplier then accounts for the deemed output VAT in their VAT submissions without having to remit the corresponding output VAT to the URA. The VAT return template accommodates the deemed VAT treatment.

Taxable supplies made to government ministries, departments and agencies

The VAT amendment Act 2017 has, effective 1 July 2017, expanded the deemed treatment of VAT on supplies to include supplies made to government ministries, departments and agencies (MDAs) executing an aid-funded project.

This means that when a contractor makes a taxable supply to an MDA executing an aid-funded project, they will raise a tax invoice to the MDA including the full VAT amount, however the MDA shall pay the supply consideration less the VAT.

The supplier then accounts for the deemed output VAT in their VAT submissions without having to remit the corresponding output VAT to the URA.

To implement the above provisions, the URA shall require the following from the suppliers and contractors to issue approval letters for qualifying projects and quantities in respect to aid-funded projects:

• Copies of contracts duly stamped indicating that stamp duty has been paid
• Bill of quantities
• Procurement plans with details including but not limited to names of supplier, Tax Identification Numbers, location, nature and description of goods and services to be procured from each supplier and quantities of each supply
• Keeping of proper records of all supplies including but not limited to purchase orders or pro-forma invoices, delivery notes stock movement and utilization at the concerned project(s)

The notice requires that for contractors who have received approvals from the Commissioner of Domestic Taxes prior to the notice, will have to be vetted again in order to obtain recertification.

Suppliers and contractors are required to comply with the above requirements effective 1 March 2018.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Uganda), Kampala

• Muhammed Ssempijja
  muhammed.ssempijja@ug.ey.com
• Hadijah Nannyomo
  hadijah.nannyomo@ug.ey.com
• Ronald Amega
  ronald.amega@ug.ey.com
• Alfred Habaasa
  alfred.habaasa@ug.ey.com

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ATTACHMENT

PDF version of this Tax Alert