The Uganda Revenue Authority (URA) recently issued a public notice reminding taxpayers of their obligation to comply with stamp duty regulations i.e payment of stamp duty on various instruments as stipulated under the Stamp Duty Act 2014 (as amended 2023). 

Understanding agreements and Stamp Duty obligations

The Black’s law dictionary defines an agreement as a mutual understanding between two or more parties about their relative rights and responsibilities regarding past or future performances. 

While the Stamp Duty Act does not explicitly define an "agreement" or "memorandum of agreement," it provides a broad definition of an instrument as a document by which a right or liability is created, transferred, limited, extended, extinguished, or recorded. The question, is therefore: What constitutes a document, and are all documents subject to stamp duty?

Going by Black’s law dictionary, an agreement qualifies as an instrument under the Stamp Duty Act. This is supported by the similarities in the definitions, such as the creation or transfer of rights and responsibilities and the requirement for such agreements to be recorded. As a result, such agreements are subject to stamp duty as stipulated in the Act. Section 3(1)(a) of the Act imposes stamp duty of UGX 15,000 on "Agreements or Memorandums of Agreement" listed as Instrument 5 under Schedule 2 of the Act. 

Common agreements 

Agreements are a fundamental part of daily life and the most common include: 

  • Employment agreements    
  • Lease or rental agreements
  • Sales agreements
  • Loan agreements
  • Partnership agreements     
  • Service agreements
  • Non-Disclosure agreements (NDAs)      
  • Shareholder agreements     
  • Construction agreements
  • Memorandum of Understanding (MoU)      
  • Insurance agreements
  • Licensing agreements      
  • Subscription agreements etc

Per the Stamp Duty Act, it appears that many of the agreements listed above are subject to stamp duty as outlined in Schedule 2 of the Stamp Duty Act. Taxpayers are advised to review and to identify any agreements they have executed that may attract Stamp Duty. It is essential to ensure that the appropriate stamp duty is applied to each agreement to comply with the law and avoid potential penalties. 

Who bears the Stamp Duty

The general rule is that the person drawing, making or executing the instrument is liable to bear the stamp duty unless otherwise agreed by the parties. Examples include:

  • Lease Agreements: The lessee (tenant) is responsible for paying the stamp duty.
  • Transfer of Property: The transferee (buyer) is liable for stamp duty.
  • Loan Agreements: The borrower typically bears the cost of stamp duty unless otherwise agreed.
  • Partnership Deeds: All partners are collectively responsible unless a specific partner is designated.
  • Share Transactions: The buyer of the shares is responsible for paying stamp duty.
  • Contractual agreements: Parties may agree in the contract who will bear the stamp duty. 

 Stamping Requirements:

  • For agreements executed within Uganda: The instruments must be stamped within 45 days of execution, as per Section 13 of the Stamp Duty Act.
  • For agreements executed outside Uganda and received in Uganda: The instruments must be stamped within 30 days of receipt, according to Section 14 of the Stamp Duty Act.

It is essential for businesses and individuals to ensure all relevant agreements are stamped within the prescribed timelines to avoid penalties, tax assessments, or legal challenges.

Compliance considerations

Since the Stamp Duty Act was enacted in 2014, one key question arises: Should taxpayers who have not been compliant pay stamp duty on employee contracts entered into from 2014 to date?   

Considering the definition of an agreement outlined above, an LPO (Local Purchase Order) qualifies as a binding agreement, particularly when it clearly specifies the terms of the transaction and is accepted by all parties involved. This raises an important question: Does this make LPOs subject to stamp duty under the Stamp Duty Act?

Failure to comply with these stamping obligations can result in assessments and penalties is liable to a fine not exceeding one hundred currency points (UGX2,000,000) or imprisonment not exceeding six months or both as per Section 56 (1) of the Stamp Duty Act.

It is crucial for businesses and individuals to ensure that all relevant agreements are stamped within the specified timelines to avoid future tax implications or legal challenges because stamped documents are admissible in court.

What should you do now?

  • Review all contracts executed to ensure the appropriate stamp duty has been applied and pay any outstanding stamp duty to the URA to avoid penalties.
  • Initiate a voluntary disclosure of the non-compliance to the URA to avoid further interest and penalties.
  • Seek professional advice from a tax agent to guide you through the compliance process, address any complexities, and ensure adherence to tax laws.
  • Stay compliant. 

 

Caveat

This newsletter has been prepared by RSM (Eastern Africa) Consulting Ltd, and the views are those of the firm, independent of its directors, employees and associates. This newsletter is for general guidance, and does not constitute professional advice. Accordingly, RSM (Eastern Africa) Consulting Ltd, its directors, employees, associates and its agents accept no liability for the consequences of anyone acting, or refraining from acting, in reliance on the information contained herein or for any decision based on it. No part of the newsletter may be reproduced or published without prior written consent. RSM (Eastern Africa) Consulting Ltd is a member firm of RSM, a worldwide network of accounting and consulting firms. RSM does not offer professional services in its own name and each member firm of RSM is a legally separate and independent national firm.