Doing business in Uganda

How quickly can I set up a business?

How quickly can I set a business up?

Setting up a business in Uganda takes into account a 5 (five) step process flow.
1. Search for Business Name
2. Reserve the Business Name
3. Obtain Certificate of Incorporation
4. Obtain an Investment License
5. Obtain a Taxpayer Identification Number (TIN)

The main law controlling business set up and incorporation in Uganda is the Companies Act 2012.

If you are setting up a limited company or a limited liability partnership (LLP) then these entities will need to be registered with Uganda Registration Services Bea urea. You will then be provided with the incorporation certificate, Articles and Memorandum of Association which can be used to open a company bank account.

Instead of establishing a subsidiary in Uganda, international businesses can register a “foreign company”. This creates a branch of the existing company, giving it the right to trade in Uganda without creating a new company. This gives it unlimited legal liability with minimum director ship of 1 individual which attracts a corporate tax standardized at 30%.

A sole proprietorship is a one individual entity. An individual carrying on business under a business name not consisting of his/her true name must register this business name at the Uganda Registration Services Bureau (URSB). A sole proprietorship is easy to establish and the owner exclusively enjoys the rewards of the enterprise.
The registration will take 2-5 working days to have the process completed and it attracts paying registration fees at the given bank (around Ugx 100,000 + Ugx2,500 bank charges

Corporate structures
Corporate business entities have a distinct legal standing from the owners who are generally protected from the liabilities of the enterprise. These include locally incorporated companies, statutory corporation and branches of foreign legal entities.

Local companies incorporated under the provisions of Uganda’s Companies Act, can have limited or unlimited liabilities. Private companies limited by shares are those entities whose membership by law is limited to 100 persons. Members’ liability for company obligations is limited to their shareholding.

The right to transfer shares is restricted for private companies so is the subscription for company shares and debentures by the public.

A private company limited by guarantee predominates non-profit organisations such as charities, sports clubs and professional bodies. The purest form of a guarantee company is one having the liability of its members limited by the memorandum to the amount that the members undertake to contribute to the assets of the company if it is wound up.

Public limited companies are entities which are not private limited companies. They can offer their shares to the general public but also have limited liability. The shares can be acquired during an initial public offering or through trading on the stock exchange.

Unlimited companies are private companies where the shareholders have unlimited liability.

What is the minimum investment needed?

Acquiring an Investment license from the Uganda Investment Authority is a mandatory requirement for foreign investors as it is the instrument that legalises the investment in Uganda. Companies need to meet the threshold i.e. US$ 50,000 for domestic investors and US$ 250,000 for foreign investors

How can I raise finance?

As the gap between the rich and everyone else widens every passing day, pressure to create a fairer and more equal society is also heating up among businesses, investors and policymakers

Asset Finance – This product finances the acquisition of equipment & machinery e.g. industrial equipment, agricultural assets, specialized medical equipment or process machinery.

The product is more suited for enterprises with collateral challenges, where the Bank uses the asset financed to enhance the collateral value

Trade Finance: In Uganda, retailers normally receive payment for consumer goods in cash. Transactions are also conducted through: open account, letter of credit, and documentary collections. Exporters of capital goods or other equipment, machinery, and services normally seek payment through wire transfers. Some large Ugandan businesses accept credit card payments. Ugandans may attempt to pay by third party check, but U.S. investors are advised to avoid this payment method due to fraud concerns. Uganda does not have a credit rating agency; however, there are two licensed credit reference bureau service providers that provide information to banks on the credit performance and exposure of borrowers.

Working Capital: Managing working capital effectively is important for any business, running an SME is no exception because without efficient and effective working capital management practices it will be difficult for the business to see its first birthday. Efficient and effective working capital management practices are still a major challenge facing SMEs in Uganda especially those at the starting level.

As a firm we recommend that SMEs should adopt the use of computerised systems in the management of their working capital to increase the security of their information plus their efficiency and effectiveness in their daily operations and services. They should also plan well for their inventory using well known techniques to avoid stock pile ups that could lead to damage. They all need to have bank accounts for the smooth management of cash.

What are the legal requirements for setting up my business?

The business structures used in Uganda take in the following forms and these are guided by the companies act 2012.

What structure should I consider?

Limited Liability Company
1. The Uganda limited liability company (LLC) Following the passage of the 2012 Act, a limited liability company in Uganda requires a minimum of one two directors and one share holder although previously one director was allowed hence making it more difficult and costly to start business in Uganda.

2. There is no minimum paid up capital requirement for Ugandan LLCs.

3. LLCs in Uganda must include “Ltd” or Limited at the end of their names to complete company incorporation.

4. This is the most common company type Uganda and is not entitled to offer shares to the public.

5. Although all Ugandan companies must have a company secretary ,there is no qualification requirement for company secretaries of private limited companies in Uganda.

6. The corporate tax rate is 30%

Foreign company investment.
The government of Uganda encourages foreign investment and has a fully liberalized foreign exchange system with no restrictions on the movement of profits or monies in and out of Uganda.
The banking system is well regulated and stable. There are no restrictions on amounts to withdraw. Limitations are on the availability of funds at smaller branches of banks and the following requirements are required at the initial stages of setup.

– Memorandum and Articles of Association certified by the Registrar of Companies from the Country of origin
– Certified copy of the certificate of incorporation/ registration from country of origin
– Certified copy(s) of bio pages of Directors passport
Company Declarations stating: List of Directors and Secretary, statement of all subsisting charges), persons authorised in Uganda, office address. These we can procure for you as a complimentary service.

Company Limited by guarantee.
All companies limited by guarantee must be registered with Companies authority ie, the Registrar of Companies in the Uganda. A company limited by guarantee must have at least one director and one guarantor. One person may assume both positions, or there can be multiple directors and guarantors.

To register a company limited by guarantee, the following need to be put into consideration.
One needs to first book or reserve a name for their business and file the Company registration form that is S.18, memorandum of understanding, and articles of association with the registrar’s office.
1. When company registration has been done, several other forms must be filed in addition to form 18 when registering a company limited by guarantee (company returns), and some of these forms include;
– Company form 20, which seeks for particulars of directors and secretaries and must be filed within 14 working days
– There is also company form 10, which is the return of allotment, which must be filed within 60 days.
– And the form of annual return for a company that is limited by shares and has to be filed once a year.

2. Company form 18 is also required when one wants to register a local company limited by shares; however one needs first to reserve a name for their business and must be accompanied by documents to be filed with the registrar of companies’ office.
These documents include;

Companies’ registration form, which is s.18
– Memorandum of understanding and articles of association
– Additional required company forms where necessary
– A1, which is a statement of nominal capital

Partnerships

There are three distinct types of partnerships in Uganda: general partnerships, limited partnerships and limited liability partnerships.

1. General Partnership (GP)

How they’re structured
In a general partnership, all partners share equal rights and responsibilities, and each partner can sign contracts on behalf of the business. The partners or non-partner managers (similar to a corporate board of directors) must obtain unanimous or majority agreement before making major decisions.
Liability implications
Along with sharing profits and losses, partners assume unlimited liability for the debts and obligations of the partnership known as joint and several liability. This means that if the partnership is sued because of the negligence of a partner, the other partners are also held liable, and their personal assets may be seized by a creditor.
Why choose a general partnership?
Partners are not required to create or file any formation documentation to formally establish a general partnership and begin operating, making them a convenient option.

2. Limited Partnership (LP)

How they’re structured
A limited partnership is made up of general and limited partners. Both types of partners are entitled to business profits, but have different roles and degrees of liability.
A limited partnership needs at least one general partner to function, because they’re responsible for running the business. Limited partners, often referred to as silent partners, contribute capital to the partnership but don’t manage daily operations.
Liability Implications
General partners must also accept full joint and several liability for the partnership’s debts and obligations. Limited partners are not liable for the actions of the partnership or its general partner.
Why choose a limited partnership?
A limited liability partnership is an attractive option if you have investors who want to financially contribute to the company, but don’t want to deal with management responsibilities or liability.

3. Limited Liability Partnership (LLP)

How they’re structured
Limited liability partnerships combine the tax benefits of a general partnership with personal liability protection of a limited liability company.
Each partner is able to choose how much they’d like to invest in the partnership, as well as their level of involvement in the business.
Liability implications
All LLP partners are essentially general partners, but with limited liability — in other words, they’re not personally liable for business debts and obligations or the errors, omissions, negligence, incompetence, or malpractice of the other partners. For example, if one partner is sued for negligence, the other partners are not legally accountable for their actions.
Why choose a limited liability partnership?
Limited liability partnerships are often created by professionals to optimize resources and save money. For example, two dentists might form a limited liability partnership to share the costs of renting and renovating office space, buying expensive dental equipment, and hiring staff.
In some states, LLPs are limited to professional partnerships, such as doctors, lawyers, architects, accountants, and the aforementioned dentists. Unlike other types of partnerships, LLPs need to be registered with the state and require a written agreement.

It should be noted that various business vehicles can also combined to operate together as joint ventures, partnerships, companies and groups of different combinations of these.

What advice can you give me in regards to payroll and taxation requirements?

In-country advice about: locations
Payroll and HR requirements
Tax/regulatory and reporting

– On inception of the company, it is a requirement by the Government of Uganda that the company registers for Uganda Revenue Authority (URA) TIN, National Social Security Fund (NSSF) and Declaration of a Beneficial Ownership Form.
This will facilitate the employer to submit the PAYE taxes of its employees, NSSF deductions. All these are governed by the Employment Act, the Income Tax Act, and NSSF Act.
– PAYE submission due date is 15th of each month

– NSSF falls due on the 15th of each month
Other deductions that need to be declared include WHT (Withholding Tax ) and VAT (Value Added Tax)

– A company may choose to employ an accountant or outsource accountancy/HR companies which provide these services.
The compensation packages differ from one company to another and depending on the agreement between the employer and an employee. These may include: basic salary, house allowance, travel allowance, medical cover, Meals etc.
In addition, a company is required to file the following taxes:

– VAT at 15% on or before 15th of each month through Tax portal using Electronic Fiscal Receipting and Invoice System (EFRIS)

– Income tax which is charged at 30% for resident companies

Is there anything else that I should know?

Building a successful business often takes sustained effort over time, a tireless belief in the value of what you’re offering, and a refusal to take ‘no’ for an answer. Entrepreneurs find ways through and around any obstacles in their path. They are not deterred. They turn failures into opportunities, and successes into greater successes. You’ll have down days and up days. Treat them like a roller coaster and keep on going. Remember, the weak give up. Don’t be in that group

In addition to the above requirements, a company is required to have the following:
It is also prudent to undertake a feasibility study for the type of business, the area where the business will be located as well as understand the needs of the target market.
• Business permit as required by the Country’s Government regulations.

• There may be also other operation permits/certificates required depending on the sector and industry of specialization of the business.

It is also prudent to undertake a feasibility study for the type of business, the area where the business will be located as well as understand the needs of the target market.
Companies are required to file company annual return with the Registrar of Companies on annual basis. This is done by the Company Secretary.