URA

EMPLOYMENT INCOME
INCOME TAX ACT CAP 340:
Vol 2 Issue 3 FY 2015-16
IMPORTANT DEFINITIONS
EMPLOYER:
A person (individual or corporate) who employs/remunerates an individual
EMPLOYEE:
An individual engaged in an employment
EMPLOYMENT:
(i) Position of an individual in the employment of another
(ii) Directorship of a company
(iii) A position entitling the holder to a fixed or ascertainable remuneration. This
may be contractual, permanent or part time
(iv) Holding or acting in any a public office
COMPOSITION OF EMPLOYMENT INCOME
Employment income comprises of the following amounts according to
the law:-
• Amount of private/personal expenditure discharged or reimbursed by the
employer
• The value of any benefits in kind provided by/on behalf of the employer
• Any amount in compensation of termination of employment or contract
• Insurance premiums paid by a tax-exempt employer for life insurance of an
employee and or his dependents
• Payments in respect of change of employment/contract terms or payment for
agreement to any restrictive conditions of employment
• Wages, salary, leave pay, payment in lieu of leave, overtime pay, fees, commission,
gratuity, bonus, and the amount of any traveling by virtue of one’s employment,
entertainment, utilities, cost of living, housing, medical or other allowance.
• Value shares receieved by an employee under employee share acquistion
scheme less consideration if any
• Consideration for the grants or option to acquire shares
• Amount of any gain on disposal of a right or option to acquire shares under an
employee share scheme.
NOTE: Each or any of the above in combination comprise employment income.

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EMPLOYEE’S RELIEF (Exempt Income)
(Employment gains not included in chargeable income)
Pension: Pension is tax exempt
Medical Expenses:Discharge or reimbursement of an employee’s medical expenses
Life insurance: Premiums paid by a taxable employer for insurance of the life of an
employee or his/her dependent
Official Employment expenditure: Allowances for or discharge or reimbursement
of expenses met by an employee while performing duties of employment
Meals/refreshments:The value of meals/refreshments provided to all employees at
equal terms in premises operated by or on behalf of the employer
Retirement fund: Employer’s contribution to a retirement fund for the benefit of the
employee (employee’s contribution is taxable)
Shares: The value of a right or option to acquire shares granted to an employee
under an employee share acquisition scheme
Local Service Tax: This is deductible before computing tax
Other benefits: Any benefit whose total value is less than Shs. 10,000 during the
month
Threshold: The first Shs. 235, 000 per month is tax free for all resident employees
Terminal benefits: 25% of terminal benefits (for employees who have served the
employer for at least 10 years)
Transport Costs: Cost of passage incurred by employer in respect of employee’s
appointment if recruited out of Uganda for employer’s sole purpose (only applies to
Non – Ugandans)

Passage costs

Allowances/Reimbursement: of the actual cost of accommodation and travel;

COMMON BENEFITS IN KIND

Employment Income   3
What is a Benefit In Kind?
It is facilitation directly/indirectly by an employer of an employee in relation to past,
present or future employment (not necessarily contractual). A benefit in kind is one
provided by an employer, third party of an employer or associate of an employer.
Taxable Non cash Employment benefits under the law include but are not
limited to:-
• Private use of official motor vehicle
• Provision of domestic servants , utilities, house keeper, chauffer
• Meals, refreshment, entertainment
• Relief of debt obligations/interest
• Waiver of obligations of the employee by the employer
• Any other benefit provided by the employer
• Provision of property by an employer to an employee (at non-arm’s length
terms)
• Provision of residential accommodation
• Difference between interest at statutory rate and rate at which loans are granted
When is a benefit deemed to have been provided by the employer?
A benefit need not be provided by the employer or provided to the employee. It can
be provided by the associate of the employer or can be provided to an associate of
the employee.
A benefit is said to have been obtained in respect of employment:
• When it is provided by an employer or by a third party under arrangement with
the employer or an associate of the employer
• When it is provided to an employee or an associate of an employee
• When it is provided in respect of past, present or prospective employment
The valuation of benefits for the purposes of subsection (3) of section 19 of the
Act is determined as follows.
1. Where a benefit provided by an employer to an employee consists of the use or
availability for use, of a motor vehicle wholly or partly for the private purposes of
the employee, the value of the benefit is calculated according to the following
formula –
(20% x A x B/C) - D where,
A is the market value of the motor vehicle at the time when it was first provided
for the private use of the employee;
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B is the number of days in the year of income on which the motor vehicle was
used or available for use for private purposes by the employee for all or a part of
the day;
C is the number of days in the year of income;
D is any payment made by the employee for the benefit.
2. Where a benefit provided by an employer to an employee consists of the
provision of a housekeeper, chauffeur, gardener, or other domestic assistant,
the value of the benefit is the total employment income paid to the domestic
assistant inrespect of services rendered to the employee, reduced by any
payment made by the employee for the benefit. However provision of a security
private guard is not classified as a taxable benefit
For example if the company pays a gardener sh. 150,000 per month, but
the employee contributes sh. 20,000 per month, the benefit derived by the
employee is sh. 130,000 (i.e. 150,000 – 20,000). If the employee does not
contribute anything, the benefit is sh. 150,000.
3. Where a benefit provided by an employer to an employee consists of the
provision of any meal, refreshment, or entertainment, the value of the benefit is
the cost to the employer of providing the meal, refreshment, or entertainment,
reduced by any consideration paid by the employee for the meal, refreshment,
or entertainment.
For example if the meals are provided for 26 days in a month, each meal
costing3,000 and the employee not contributing anything, then the benefit
is sh.78,000 per month (3,000 x 26).
4. Where a benefit provided by an employer to an employee consists of the
provision of utilities in respect of the employee’s place of residence, the value of
the benefit is the cost to the employer of providing the utilities reduced by any
consideration paid by the employee for the utilities.
In this case, the actual payment receipts from the utility company can be
usedto ascertain the value (less actual contribution by the employee if
any).
5. Where a benefit provided by an employer to an employee consists of a loan,
or loans in total, exceeding one million shillings at a rate of interest below the
statutory rate, the value of the benefit is the difference between the interest paid
during the year of income, if any, and the interest which would have been paidif
the loan had been made at the statutory rate for the year of income. Statutory
rate here refers to the Bank of Uganda discount rate at the commencement of
the year of income.
Employment Income   5
 Example: if an employer gives an employee a school fees loan of
sh.400,000;a furniture loan of sh. 500,000 and an appliances loan of sh.
300,000 at 10% interest per month when the statutory rate is 15%, the
benefit would be sh. 60,000 ( i.e. 1,200,000 x 15%) – (1,200,000 x 10%) =
180,000 – 120,000.
6. Where a benefit provided by an employer to an employee consists of the waiver
by an employer of an obligation of the employee to pay or repay an amount
owing to the employer or to any other person, the value of the benefit is the
amount waived.
Example: In the month of January 2013, an employee owed a bank sh.
300,000. The employer decided to pay the full amount for the employee
on 31st January 2013 and opted not to recover that amount from the
employee. The employee has obtained a benefit equal to sh. 300,000 for
the month of January, which should be part of her employment income.
7. Where a benefit provided by an employer to an employee consists of the
transfer or use of property or the provision of services, the value of the benefit is
the market value of the property or services at the time the benefit is provided,
reduced by any payment made by the employee for the benefit.
Example: The Company transferred a car valued at sh. 5,000,000 to an
employee in February 2009. The employee was asked to contribute sh.
1,000,000 for that car.
The employee derived a benefit equal to sh. 4 million in February, which
should be included in his employment income.
8. Where a benefit provided by an employer to an employee consists of the
provision of accommodation or housing in kind, the value of the benefit is the
lesser of-
(a) the market rent of the accommodation or housing reduced by any payment
made by the employee for the benefit; or
(b) Fifteen per cent of the employment income, including the amount referred to in
paragraph (a), paid by the employer to the employee for the year of income in
which the accommodation or housing was provided.
Example: A company pays an employee basic salary sh. 3,000,000 per
month; transport allowance sh. 300,000 per month and medical allowance
sh. 200,000per month. They provided him with a company house whose
market rent is sh. 600,000 per month for which he contributes 50,000 per
month.

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 The benefit derived by this employee is the lesser of:
a) (600,000 – 50,000) = 550,000 and
b) 15% (3,000,000 + 300,000 + 200,000 + 550,000) = 607,500
In this case the housing benefit is sh. 550,000
9. The value of any non-cash benefit provided by an employer to an employee
whichis not covered by the above clauses is the market value of the benefit, at
the timethe benefit is reduced by any payment made by the employee for the
benefit.
PAY AS YOU EARN RATES OF TAX
MONTHLY CHARGEABLE INCOME RATE OF TAX
Not exceeding Shs. 235,000 Nil
Exceeding shs. but not exceeding 10% of the amount by which chargeable
Shs. 335,000 income exceeds Shs. 235000
Exceeding Shs. 335,000 but Shs. 10,000 plus 20% of the amount by which
not exceeding Shs. 410,000 chargeable income exceeds Shs. 335,000
Exceeding Shs. 410,000 (a) Shs. 45,500 plus 30% of the amount by which
chargeable income exceeds Shs. 410,000
(b) Where the chargeable income of an individual
exceeds 10,000,000 per month, an additional 10% is
charged on the amount by which the chargeable
income exceeds shs. 10,000,000 per month

NB. Non-resident employees are not entitled to the threshold (Shs 235,000); so at
every amount under rates of tax, add shs.23,500 or (10% of 235,000)
TREATMENT OF PART TIME ALLOWANCES
• Employees who are engaged on part-time basis are deemed in principle to be
earning income from more than one source.
• Part-time allowances/earnings are taxed at a flat rate of 30% of the gross
• An employee aggrieved by this treatment may submit a return of emoluments
from all sources and make a claim of tax overpaid.
EMPLOYER’S OBLIGATION
The income tax law further provides for obligation of the employer as
summarized below:
Withholding: To deduct the correct tax at the time of effecting payment to a liable
employee.
Remitting: To remit the total tax by the 15th day of the immediately following
month.
Employment Income   7
Accountability: Account the tax deducted from every employee on a monthly basis.
Maintenance of Employees’ Records: To maintain records and keep them for
inspection by URA on demand for at least five (5) years
EMPLOYEE’S OBLIGATION/RIGHTS
• If you are deriving income from more than one source, complete an end of
year return and declare:
• Total income from all sources including business income.
• Total tax paid at source such as PAYE, Withholding tax or provisional tax. (This
excludes presumptive tax and rental tax paid by such employee).
• Tax payable.
EMPLOYEE’S RIGHTS
An Employee:
• Is not required to furnish return if taxpayers source of income is only one
employment and tax is fully deducted and paid source
• Is entitled to claim refund of over-paid tax where applicable.
• Is entitled to accountability for all taxes deducted and paid at source by the
employer.
Therefore it is in the interest of the taxpayer to file a return of income where he/she
has multiple source of income. No one can enjoy a refund of overpaid tax without
making a declaration.
WHAT HAPPENS IF TAX IS DEFAULTED?
An employer who fails to withhold tax as required by law is personally liable to pay
the tax together with any penal tax and interest thereon.
However the employer is entitled to recover the tax from the employee, if he/she
wishes to do so, but cannot recover the interest or penalty from the employee.

A Publication of

Uganda Revenue Authority

DISCLAIMER:
This information is strictly for purposes of guidance to our clientele and is subject to
change on the amendment of the Tax Laws and any other regulations governing tax ad-
ministration
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