Uganda’s legal system is based on English Common Law and African Customary Law. Customary law governs to the extent it does not contradict with the statutory laws, although the 1995 Constitution is the supreme law of the land. [1]
Ugandan law allows for the establishment of a variety of not-for-profit organizations (NPOs). NPOs interacting with foreign grantmakers are most commonly constituted as:
NGOs are governed by the NGO Registration Act of 1989.[3] The Act defines an “organization” as “a nongovernmental organization established to provide voluntary services, including religious, education, literary, scientific, social or charitable services, to the community or any part of it.” (NGO Registration Act, section 1(d)) Trusts are covered by the Trustees Act, Chapter 164, 1954 and the Trustees Incorporation Act. Chapter 165, 1939. Foundations can be registered either under the Trustee’s Incorporation Act or as companies limited by guarantee under the Companies Act.
Uganda’s Income Tax Act establishes a category of exempt organizations which include organizations that are of a religious, charitable, educational, or public character. Qualifying organizations are exempt from tax on almost all categories of income.
Individuals and legal entities are eligible for tax deductions for charitable contributions to tax exempt organizations. Ugandan law subjects certain sales of goods and services to VAT, with a fairly broad range of exempt activities. Foreign grants are exempt from VAT.
Ugandan law creates several types of not-for-profit organizations (NPOs), including: NGOs, trusts, and foundations. Other not-for-profit legal forms, which are outside the scope of this Note due to their limited interaction with U.S. grantmakers, include cooperative societies, societies, communal land associations, political parties, religious entities, and trade unions.
NGOs. The 1989 Nongovernmental Organizations Registration Act (“NGO Registration Act”) defines an “organization” as “a nongovernmental organization established to provide voluntary services, including religious, educational, literary, scientific, social or charitable services to the community or any part of it.” (NGO Registration Act, section 1(d)) The Law does not distinguish between membership and non-membership organizations. NGOs must register with the National Board of NGOs. (NGO Registration Act 2(1))
Trusts and Foundations. The Trustees Act and the Trustees Incorporation Act govern trusts and foundations. Foundations also may register as companies limited by guarantee under the Companies Act. (Companies Act, Cap. 110, 1961) Trusts may be established by any body or association for any “religious, educational, literary, scientific, social or charitable purpose.” (Trustees Incorporation Act, 1(1) (1939)). Trusts and foundations are established to provide grants, and in some cases loan financing at a more affordable rate to NGOs, community-based organizations [4], and private organizations, in support of their goals and objectives.
B. Public Benefit Status
The NGO Registration Act defines as covered “organizations” those providing “…charitable services to the community or any part of it.” (NGO Registration Act, section 1(d)) The Act, however, does not define the term “charitable services.” Nor does the Trustees Incorporation Act define “charitable purpose” as the term is used in the section on establishing a trust.
Notably, however, the Income Tax Act restricts "exempt organization" status to organizations, institutions or irrevocable trusts that qualify as religious, charitable, or educational institutions of a public character that have been issued a written ruling by the Commissioner currently stating that it is an exempt organization. (Income Tax Act, Section 2(bb))
Charitable organizations established under the Companies Act do not benefit from any tax exemptions.
There are no express legal provisions that govern the financial transactions or self-dealing between not-for-profit organizations and their directors, officers, employees or family members of insiders. Common law practice, however, dictates that neither income nor assets can be distributed to employees, directors, founders, or any other person other than for the fulfillment of the organization’s statutory purposes. Reasonable compensation for services rendered in the course of fulfilling the activities of the organizations is allowed. According to local experts, as a matter of common law practice, this prohibition extends to NGOs, trusts and foundations.
Regulation 14 of the NGO Act Regulations, 1990 provides that; “an organization or a member or employee of the organization shall not use the organization directly or indirectly to engage in any gainful activities for the economic interest…of any of its members or employees.” According to local experts, as a matter of common law practice, this prohibition extends to all NPOs including trusts and foundations.
NGOs possess legal persona, so property is vested in the organization as a legal entity. There are no express legal provisions that allow donors to retrieve donated property or determine the destination of their contributed assets outside applicable contract obligations. The use of donor-recipient contracts is common in Uganda, but a donor cannot enter into a contract with an organization that stipulates that the donor can recoup his or her donation if the organization dissolves. According to local experts, as a matter of common law practice, this prohibition extends to trusts and foundations.
Ugandan law does not provide for the distribution of assets upon liquidation of an NPO. Rather the law requires the constitution of each organization to establish procedures for the disposition of the organization’s assets upon dissolution. According to local experts, the general practice is that upon dissolution and or winding-up of the organization the debts and liabilities of the organizations are settled first and the remaining property is distributed to other organizations with similar aims and objectives. The law prohibits the distribution of assets among members.
The NGO Registration Act and its implementing regulations allow the Government of Uganda to exercise considerable control over the operation of NGOs. An NGO is prohibited from operating in Uganda unless it has registered with the National Board of Nongovernmental Organizations (“Board”). (NGO Registration Act 2(1)) When issuing the certificate of registration to the NGO, the Board may grant the registration subject to conditions or directions “generally as it may think fit to insert in the certificate, and particularly relating to: (a) the operation of the organization; (b) where the organization may carry out its activities; and (c) staffing of the organization.” (NGO Registration Act 2(2)) [5]
2. Economic Activities
NPOs in Uganda may not pursue economic activities as their sole purpose.[6] NGOs may engage in economic activities such as the sale of goods or services to the public. (NGO Registration Regulations, Regulation 14(3)) The prices of such goods and services must be in conformity with the prices, if any, prescribed by the Government for those goods and services or, where no such prices have been prescribed, prices must be in conformity with open market prices. (NGO Registration Regulations, Regulation 14(3)) Money earned by the organization must be reinvested in the project for which it was received, in consultation with the local government District Development Committee in the area in which the project is situated. (NGO Registration Regulations, Regulation 14(4))
An NGO can establish a subsidiary company whose sole purpose is commercial or business activities. Such subsidiary will be registered under the company law as a limited company and shall be treated as such for tax purposes.
The Income Tax Act, Cap. 340, section 21(f) provides further guidance on the types of economic activities that exempt organizations may engage in without becoming liable for income tax payments. The Income Tax Act provides that income other than property income or business income not related to the functions constituting the basis for an organization’s existence will be subject to tax.
No legal provision exists that imposes any limits on an organization’s budget that can be devoted to lobbying or other legislative activities.
As for “political” activities, Ugandan NGOs are not permitted to belong to any political group. They cannot directly or indirectly support a political candidate running for office. NGOs can actively participate in the election process through conducting educational seminars on current topics of political concern, including understanding the platform of various candidates. Moreover, organizations are allowed to engage in monitoring and observing the electoral process, documenting the flaws in elections, cooperating with the Electoral Commission, and proposing improvements to the electoral process. In the past, organizations have supported candidates in their bids to challenge election results.
F. Discrimination
The Constitution of the Republic of Uganda prohibits discrimination in all spheres of political, social, and cultural life, as well as based on sex, race, color, tribe, origin, birth, social or economic standing or disability. (Art. 21) In addition, the Constitution includes National Objectives and Directive Principles of State Policy that provide, “The State shall take appropriate measures to afford every citizen equal opportunity to attain the highest educational standard possible.” (Constitution, Objective 18) These provisions bind all persons including educational institutions.
Ugandan law does not restrict other organizations or persons from controlling a Ugandan NPO. Accordingly, a for-profit entity might establish an NPO and continue to control or own it. Likewise, a Ugandan NPO could be controlled by a foreign grantor charity.
Regulation 14(2) of the NGO Registration Regulation requires that where an organization “receives monies in convertible currency in its possession, it shall open and operate an external bank account with the Bank of Uganda in which the currency shall be deposited and through which the transactions shall be conducted.” (NGO Registration Regulations, Regulation 14(2)) To monitor the use of foreign grants and related NGO activities, Ugandan law requires NGOs to: submit to the NGO Board an annual return; provide to the relevant district development committee estimates of its income and expenditures for review and approval; and submit to the Board or any other authority such information that the Board may consider to be in the public interest. [7]
Uganda’s Income Tax Act provides that an organization is exempt from paying income tax if it falls within the definition of “exempt organization” under Section 2(bb) of the Income Tax Act and has been issued a formal ruling from the Tax Commissioner qualifying it as an exempt organization. The Income Tax Act defines an exempt organization as a company, institution, or irrevocable trust that is:
an amateur sporting association;
a religious, charitable, or educational institution of a public character; or
a trade union, employees’ association, an association of employers registered under any law of Uganda, or an association established for the purpose of promoting farming, mining, tourism, manufacturing, or commerce and industry in Uganda.
All income of an exempt organization is free from income tax, with the exception of property income received. Rental income of immovable property, however, may be exempt if it is used by the lessee exclusively for the activities of the organization specified in the Act. In addition, business income received by an NGO that is not related to the function constituting the basis of the organization’s existence is subject to tax. (Income Tax Act S 21(f))
Individuals and legal entities are eligible for tax deductions for charitable contributions to a tax exempt organization listed in Section 2 (bb) (a) and (b) of the Income Tax Act. An individual may claim as a deduction up to 5% of that individual’s taxable income for the year in which the gift is made.
B. Value Added Tax
The standard VAT rate is 18%. (Value Added Tax (Amendment) Act, 3(2005)) Foreign grants are not subject to VAT. Certain supplies are exempt from VAT, including: unprocessed foodstuffs and agricultural products; educational, medical, dental or nursing services; social welfare services; and medical equipment. (VAT Act. Schedule 2, Section 19)
The legislation also makes provision for select zero rated supplies, including: drugs and medicines, and educational materials. (Section 24 (4) and 3rd Schedule of VAT Act, Cap. 349, 1997)
The annual registration threshold is fifty million Uganda shillings (50,000,000 Ug Shs). (Section 7 (2) VAT Act, Cap. 349, 1997)
C. Import Duties
The East African Community Customs Management (EACCM) Act regulates the management and administration of customs duties on imports in Uganda and the region. Goods and equipment used in aid funded projects are exempt from customs duties. (EACCM Act, Section 188, Schedule 5 (10)) However, the Act does not define “aid funded projects.” In addition, goods imported by international and regional organizations with diplomatic accreditation, and donor agencies are similarly exempt from paying import duties. (EACCM Act, Section 188, Schedule 5 (6)) The Act does not list local or national NGOs as entities entitled to an automatic exemption on imports.
Certain agricultural and health-related items are listed as exempt from import duties. (Schedule 5, Part B)
D. Double Tax Treaties
No tax treaties have been entered into between Uganda and the United States.
Livingstone Sewanyana
Executive Director
Foundation for Human Rights Initiative (FHRI)
Human Rights House
Plot 1853, Lulume Road, Nsambya
P.O Box 11027,
Kampala, Uganda
[1]
The articles of the Constitution referenced in this Note are the same as those of the amended Constitution of the Republic of Uganda (amended February 2006).
[2] Due to their limited interaction with U.S. grantmakers this Note will not cover Ugandan law as it relates to community-based organizations (CBOs), trade unions, cooperatives, cooperative societies, political parties, and religious entities.
[3] The Ugandan Parliament passed the NGO Registration (Amendment) Act in 2006. The President assented to the Act on May 24, 2006, and it came into operation on August 4, 2007. However, in practice the Act is not yet operational. Section 13 of the 1989 NGO Registration Act requires the Minister of Internal Affairs, in consultation with the National Board of NGOs, to issue Regulations that will complement the new law and to present them to Parliament for approval.
In November 2007, the Regulations were presented to the 1 st Parliamentary Council in the Ministry of Justice but were withdrawn for further review and consultations with NGOs. In a January 2008 meeting with NGO representatives, representatives of the Minister of Internal Affairs, and the Government team, it was agreed that three NGO representatives should form a committee with the Government team to work on the final text of the proposed NGO Regulations and Guidelines. Once a consensus is reached among the committee members, the Regulations will be presented again to the 1 st Parliamentary Council in the Ministry of Justice and, if approved, they will be signed by the Minster of Internal Affairs and later gazetted. This will trigger the implementation of the NGO Registration Amendment Act, 2006.
The 2006 NGO Registration (Amendment) Act modified the 1989 NGO Registration Act as it pertains to the National Board of Nongovernmental Organizations. The Board has authority to monitor NGO operations and develop policy guidelines for CBOs. Additionally, NGOs are now required to obtain a periodic permit to operate (NGOs are not absolved from the requirement that they register with the NGO Board). The Amendment Act also expanded the powers of the Ministry to regulate the dissolution of NGOs.
[4] A CBO is an organization “operating at a subcounty level and below, whose objective is to promote and advance the well being of its members or the community.” (Nongovernmental Organizations Registration (Amendment) Act, Amendment 6.) CBOs typically are formed to accomplish one specific purpose: examples include forming groups to work collectively on members’ farms or to support funeral ceremony preparations. A few groups take a wider community development role. CBOs are relatively small (usually involving 10-20 households).
[5] The NGO Registration Act Regulations Regulation 12 requires organizations to comply with the following requirements in carrying out their operations:
Organizations may not make any direct contact with the people in any part of the rural area of Uganda without providing seven days notice in writing of its intention to do so to the local government executive committee and the district administrator.
Organizations shall cooperate with the local government councils and executive committees in the area.
Organizations are prevented from “engaging in any act which is prejudicial to the security of Uganda or any part of it.”
Activities of organizations are limited to the geographic area of Uganda in which it is registered to carry out operations.
[6] An exception is Micro–Credit Associations that engage in business and may be registered as NPOs with the sole purpose of doing business.
[7] The registration of a foreign organization also requires a recommendation by the diplomatic mission in Uganda of the country from which the organization originates, or by a duly authorized Government office of the organization’s home country. Moreover, Regulation 13 of the NGO Registration Regulations provides that an organization shall comply with certain staffing regulations. Every organization must submit a chart showing its structure and staffing to the NGO Board, particularly specifying:
• Its foreign workforce requirements;
• Requirements of the Ugandan counterparts of foreign employees;
• Period planned by the organization to replace foreign employees with qualified Ugandans.
Additionally, Section 13 of the NGO Regulations requires the NGO Board to approve foreign workers of local organizations.
