Uganda's Minister of Finance Planning and Economic Development has proposed amendments to the tax laws. These amendments aim to exempt income derived from private equity or venture capital funds regulated in Uganda from income tax and stamp duty. The Stamp Duty (Amendment) Bill 2024 and the Income Tax (Amendment) Bill 2024 aim to prescribe a stamp duty rate for the nominal share capital or any increase of shares acquired by an investor in a private equity or venture capital fund, as well as exempt income derived from or by private equity or venture capital fund respectively.
The East African Private Equity and Venture Capital Association ("EAVCA") deal tracker report for Uganda states that 2023 represented the most significant decline in deal performance in Uganda in recent years with the year-over-year deal volumes declining by -53%. The report further details that the drastic decline in deal volumes in Uganda in 2023 could be attributed to the cyclical nature of the investment industry, characterised by periods of bumper harvests followed by down markets.
The Income Tax (Amendment) Bill, 2024
The Bill proposes to exempt income derived from or by private equity or venture capital funds regulated by the Capital Markets Authority (CMA) from income tax. Gains resulting from the disposal of non-business assets, such as the investment interest of a private equity or registered venture capital fund are also to be exempted from the proposed new tax. This tax targets the gains from the disposal of non-business assets at a rate of five percent on the gain.
The Stamp Duty (Amendment) Bill, 2024
The Stamp Duty Act currently provides for payment of stamp duty on nominal share capital or any increase of the nominal share capital of a limited liability company incorporated in Uganda at the rate of 0.5% of the total value of the increase. The Bill proposes to amend the Stamp Duty Act to exclude payment of stamp duty on shares acquired by investors in a private equity or venture capital fund regulated by the CMA. Stamp duty will not be payable on the nominal share capital or any increase of share capital acquired by an investor in a private equity or venture capital fund. Under the proposed amendment, private equity and venture capital funds would also be exempt from payment of stamp duty on the transfer of shares or other securities to or by an investor in a private equity or venture capital fund.
The proposed amendments are a welcome development for private equity and venture capital investors looking to invest in Uganda. However, the language of the Bills raises questions about whether the proposed exemptions will only apply to venture capital and private equity funds that are licensed under the CMA Act or which operate through limited liability companies. The Bills are silent on the tax treatment of foreign investors and funds which operate as partnerships or trusts.
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