African countries are making digital service tax for foreign companies a norm as Uganda joins the race

Uganda’s new legislation imposes a 5% revenue tax on non-resident companies providing digital providers. Services lined embrace internet marketing, knowledge providers, and on-line marketplaces. Major tech firms like Meta and Netflix might be affected, becoming a member of Kenya and Nigeria in implementing related taxes.

Toward the finish of March 2023, Uganda’s minister for finance, planning, and financial growth introduced the revenue tax (modification) invoice 2023 and the conference on mutual administrative help in tax issues (implementation) invoice earlier than parliament. The tax modification payments cowl key features such as revenue tax and VAT, amongst others, such as excise responsibility and lotteries and gaming. A bit of the amendments proposed taxing non-residential companies that present digital providers to Ugandans.

President Yoweri Museveni has signed the payments making them legislation, which implies they’ll turn out to be efficient quickly. However, what do the new legal guidelines say and indicate for foreign tech firms working in the nation?

Taxing foreign digital service suppliers 

The new legislation introduces an revenue tax of 5% on all non-resident people who earn revenue by offering digital providers to clients inside Uganda. The legislation specifies that a non-resident individual is deemed to derive revenue from rendering providers to a buyer in Uganda if the digital service is delivered through the Internet, an digital community, or a web-based platform.

Within the scope of this laws, “digital services” covers a vary of providers, together with internet marketing providers, knowledge providers, and providers facilitated by on-line marketplaces or intermediation platforms, such as lodging, automobile rent, and different transport-oriented platforms. Moreover, digital content material providers are additionally included, protecting entry to and downloading digital content material, on-line gaming providers, cloud computing providers, and knowledge warehousing.

The invoice encompasses different providers supplied by social media platforms or web serps. It permits for the potential inclusion of different digital providers, topic to the minister of finance’s prescription by a statutory instrument issued underneath the revenue tax act cap 340.

Which key companies might be affected?

The new legislation has launched a digital service tax (DST) on foreigners who supply on-line providers like Meta, Netflix, Google, and others such as e-cab companies such as Bolt and Uber. However, how this proposed modification might be carried out has not been mentioned. Besides, it’s unclear whether or not it is going to be carried out by withholding tax or requiring non-residents to file revenue tax returns.

No exemptions have been talked about for the last withholding tax of 15% on non-residents incomes revenue underneath a Ugandan-source providers contract when the DST is in impact. This implies that the efficient tax fee reaches 20% if each measures are utilized. The battle could also be addressed in a future modification, however that has not been completed for now. 

DST in Kenya and Nigeria 

Uganda now joins Kenya, which launched DST underneath the Finance Bill 2020. The legislation noticed the introduction of a digital tax at 1.5% of the gross transaction worth. As a end result, the tax was payable by people whose revenue from providers and merchandise was sourced inside the state by the digital market. The digital service tax was payable when transferring cost to service suppliers. It doubled to three% in mid-2022.

In 2022, Nigeria launched a 6% digital providers tax. At the similar time, non-resident suppliers of digital providers had been required to gather VAT on their choices. Like the Kenya and Uganda case, these digital providers cowl apps, high-frequency buying and selling, digital knowledge storage, and internet marketing. Foreign companies like Netflix and Meta, providing digital providers, needed to remit 6% of their annual turnover from their Nigerian enterprise to the Federal Inland Revenue Service (FIRS) as per the regulation. Nigeria additionally individually launched VAT on foreign digital providers in January 2022.