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KAMPALA – The Uganda Revenue Authority (URA) has officially implemented the 5% Digital Services Tax (DST) as per the Income Tax Amendment Act of 2023, effective July 1, 2023. Nonresidents offering digital services to Ugandan customers must register for the DST through the URA website by October 20, 2023, or face a 15% withholding tax. Notably, those already registered for VAT on digital services do not need to register separately for DST, as the URA will automatically extend the registration.
Uganda introduced the VAT digital services tax in July 2022, requiring nonresident providers of digital services to Uganda to register when annual revenues exceed UGX 150 million (approximately USD 39,650). This tax covers a broad range of digital services, from web hosting to online gaming. As of July 2023, the scope of this tax expanded to include additional services like online advertising, subscription services, cloud computing, and ride-hailing platforms.
In parallel, the DST regime also took effect on July 1, 2023, targeting income earned from providing digital services directly to Ugandan consumers. Unlike the VAT regime, the DST has no registration threshold, meaning even a single sale within Uganda triggers tax obligations for foreign service providers.
Economic & Compliance Impact
The new DST regime represents a significant expansion of Uganda’s efforts to capture tax from digital transactions, aligning with a broader trend in global tax policy. Nonresidents engaged in activities such as advertising, data services, cloud storage, and services on social media platforms or online marketplaces will need to ensure compliance with Uganda’s digital services tax regime.
The automatic registration for VAT-registered taxpayers streamlines compliance for companies already subject to the VAT on digital services rules. However, non-registered entities face the risk of a 15% withholding tax if they fail to register for the DST. This punitive measure underlines Uganda’s growing commitment to ensuring cross-border digital service providers comply with local tax laws.
Stakeholder Reactions
experts have noted that many jurisdictions, like Uganda, are ramping up enforcement of taxes on cross-border digital services, which means that foreign digital companies must be diligent in reviewing their obligations. The DST regime presents a new challenge for nonresidents who may not have previously engaged with Uganda’s tax system or were only subject to VAT.
A tax advisor further observed: “This two-pronged tax system—DST and VAT on digital services—presents new administrative burdens for nonresidents. Since there is no registration threshold for the DST, companies must be proactive in monitoring their activities and accounts to avoid penalties.”
What to Watch Next
Taxpayers and service providers must review their activities and ensure timely registration to avoid withholding penalties. Those already compliant with Uganda’s VAT digital services rules should monitor their accounts for automatic DST registration. Given Uganda’s increasing enforcement focus, compliance with both the VAT and DST regimes will be critical to maintaining smooth operations in the jurisdiction.
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