The market-based economy of Uganda is one of the most rapidly flourishing economies of Eastern Africa. Uganda’s dynamic and ever-expanding industrial base successfully draws in capital investors from across the world. Foreign corporations and investors are focusing on establishing regional and local business organizations in Uganda to take advantage of the country’s strategic location and well-connected air routes.
Expanding business operations to Uganda may be one of the best investment decisions for a company. Still, such an operation can be successful only by establishing a subsidiary company in Uganda. Read on to gain a detailed insight into the corporate governance structure and the laws that administer establishing and operating a subsidiary company in Uganda.
What are the Types of Subsidiaries in Uganda?
The commercials, taxation, and legal considerations govern the protocol for incorporation of a subsidiary of a foreign company in Uganda. The corporate law of Uganda permits the establishment of seven categories of subsidiary companies. These seven categories of subsidiaries include public companies, sole proprietorships, private limited companies by guarantee or shares, statutory companies, unlimited companies, partnerships, and foreign corporations registered in Uganda. The seven types of subsidiaries in Uganda are as follows:
Public limited companies
- According to the Companies Act of Uganda, 2012, public limited companies have limited liability but can offer their stocks to the public.
- A public limited company must have a board associated with a board committee that will hold regular board meetings and lay down financial reporting strategies.
- In Uganda, a sole proprietorship refers to a one-person company.
- The person obtains a registration certificate from the Registrar of Business Names and applies for a license for trading with the local governmental authority.
- For sole proprietorships, it is not mandatory to register the business name.
Private limited companies by guarantee
- In a private limited company, by guarantee, the liability of each company member is limited by the Memorandum of Association of the company.
- The liability depends upon each member’s contribution to the company assets in the event of the winding up of the company.
Private limited companies by shares
- According to the Articles of Association of the company, a private limited company by shares can have only a hundred members.
- The company also restricts the right to transfer shares.
- The Articles of Association also limit the liability of each member to their shareholdings in the company.
- The government of Uganda elects the Directors of a Statutory company. A statutory company is a company that the Parliament of Uganda governs.
- Every statutory corporation has a Board of Directors answerable to the Parliament and the general public.
- An unlimited company is a private firm. In an unlimited company, the stockholders have unlimited liability.
- According to the Articles of Association of an unlimited company, every member is jointly and respectively liable for the financial obligations of the unlimited company if the company winds up.
- A partnership refers to an organization where two to twenty people contribute capital to establish the company.
- In Uganda, partnership firms are of two types: limited liability and general partnership companies.
- A limited liability partnership firm has limited liability partners and general partners. In a general partnership firm, every partner has to shoulder an unlimited liability regarding the obligations and debts of the company.
- The general partners are responsible for the daily management of the company. The limited liability partners contribute to the company’s capital.
Foreign corporations registered in Uganda
- The government of Uganda provides foreign corporations and branches of foreign corporations with a compliance certificate upon registration.
How to Set Up Subsidiaries in Uganda?
The establishment of a subsidiary in Uganda is relatively hassle-free. The steps given below highlight the process for setting up a subsidiary in Uganda:
- Search for a name for the business.
- Reserve the name of the business by applying to Uganda Registration Service Bureau.
- Apply for a membership subscription of the subsidiary with the Uganda National Chamber of Commerce. For membership subscription, the business organization has to file a passport copy and photos of any one of the directors of the company.
- Obtain the certificate of incorporation for successful registration of the subsidiary company in Uganda. To acquire this certificate, the business organization needs to furnish the Uganda Registration Service Bureau with the company books, Articles of Association, Memorandum of Agreement, declaration of companies, company resolutions, and the necessary forms A1, A2, A3, 7, and 9A.
- The business organization must apply to the Uganda Revenue Authority to obtain a Tax Identification Number for incorporation of a foreign subsidiary in Uganda. Every director has to fill in and submit a personal inquiry form online to acquire the Tax Identification Number.
- The subsidiary company has to apply to Uganda Revenue Authority for VAT compliance if the company’s threshold exceeds 50,000,000 shillings. The company has to make an application with Nominal Capital Form.
- The company has to register with the local municipal authority to obtain a trading license for the incorporation of a foreign subsidiary in Uganda. The municipal authority will require the submission of the Memorandum of Agreement, the Articles of Association, the lease agreement, and the Certificate of Incorporation of a wholly owned subsidiary in Uganda.
- Lastly, the subsidiary company has to obtain a registration certificate from the National Social Security Fund for the successful incorporation of a foreign subsidiary in Uganda. Every employer in a subsidiary company must pay the employees an NSSF amount of 10%.
Benefits of Setting Up an Ugandan Subsidiary
The reasons why Uganda is one of the most preferred destinations for establishing a subsidiary company are listed below:
- The economic infrastructure of Uganda is robust and highly flexible and, therefore, ideally suited for subsidiary company formation in Uganda.
- The costs of setting up a subsidiary company in Uganda are quite low
- Uganda’s governmental and regulatory bodies are strong and stable and, therefore, perfectly suited for operating a subsidiary business in Uganda.
- There is abundant availability of skills, innovation, and technological talent in Uganda that would help with successful subsidiary company formation in Uganda
- The process of registration of a subsidiary business in Uganda is very straightforward and hassle-free.
- Uganda is renowned for its thriving consumer market, so a subsidiary business in Uganda would thrive and rake in handsome revenues.
Documents to Prepare When Opening a Subsidiary in Uganda
If a foreign company seeks to set up a subsidiary company in Uganda, then a local registration of the subsidiary company is mandatory. The organization of the subsidiary business in Uganda has to keep the following documents ready to open a subsidiary company in Uganda:
- Authorized copies of the Memorandum of Agreement and the Articles of Association. In addition, the company may also have to submit a Company Constitution or a Charter along with a certificate obtained from the resident country.
- Registration forms include Form 24, Form 13, Form 25, and Form 26. Form 24 contains details regarding the Secretary and the Directors of the company. Form 13 provides a statement on the subsisting charges. Form 25 lists the names and registered addresses of the persons residing in Uganda and authenticates one to obtain services on behalf of the business organization. Form 26 details the company’s registered address and head office.
What Business Forms can Uganda Subsidiaries Take?
Subsidiaries in Uganda can be of the following forms:
Unincorporated subsidiaries in Uganda include partnerships and sole proprietorships
Corporated subsidiaries in Uganda include private firms limited by guarantee or shares, unlimited companies, public limited companies, foreign companies, and statutory companies.
Uganda Subsidiary Laws
The subsidiary laws of Uganda depend upon the location and business structure of the subsidiary system in Uganda. The Company Act of 2012 of Uganda makes it mandatory for the subsidiary company to have at least one shareholder and two directors. According to the subsidiary laws of Uganda, the subsidiary company does not have to meet a share capital mandate. Every subsidiary company in Uganda needs to appoint a company secretary.
The subsidiary company must register within a month of its establishment in Uganda. Further, the subsidiary company shall have the right to hold a plot of land in Uganda as per the provisions of the Investment Code Act and the Land Act of Uganda.
According to the Act, if any alteration to the subsidiary company’s Charter, Memorandum, Articles, and statutes, then the alteration must be made known to the Registrar within two months.
In the event of winding, the subsidiary company has to give notice, in writing, of the cessation of subsidiary business in Uganda, to the Registrar. Suppose the subsidiary company in Uganda fails to comply with the provisions of the Act. In that case, the company shall pay a fine of a thousand currency points with an additional charge of five currency points for the continuation of the offense.
Post Incorporation Compliance
Compliance with the provisions of the Act is strictly mandatory after the incorporation of a subsidiary of a foreign company in Uganda. Some of the compliance provisions that a company needs to follow after incorporation of a wholly owned subsidiary in Uganda are as follows:
- Every subsidiary must have a company seal as proof of incorporation of a foreign subsidiary in Uganda. The seal shall bear a metal dye engraving of the company’s name in legible letters.
- Every subsidiary company must prepare a balance sheet and an account recording the profits and losses in every fiscal year. The subsidiary company must undertake to deliver copies of the balance sheet and the profit and loss accounts to the Registrar in due time.
- The subsidiary company must state the name of the resident country. Furthermore, the subsidiary company must mention the parent company’s name and the parent company’s country of location in all notices, letter papers, billheads, and other sanctioned publications of the company.
- Every subsidiary company in Uganda needs to open a bank account before incorporation and use the bank account to conduct all transactions after the incorporation of a wholly-owned subsidiary in Uganda.
- The company must set up a registered office within a month of the official incorporation of a wholly-owned subsidiary in Uganda. The address of the registered office shall receive all business communication from different authorities. The company has to inform the Registrar of the official communication address within a month of setting up the registered office.
- The maintenance of a set of statutory registers at the company’s office in Uganda is mandatory after the incorporation of a foreign subsidiary in Uganda.
- The subsidiary company must issue share certificates to the company’s shareholders within two months of the incorporation of a wholly-owned subsidiary in Uganda. Further, the subsidiary company must acquire a certificate authorizing the commencement of operations in Uganda within three months of the incorporation of a wholly-owned subsidiary in Uganda.
Taxes on Subsidiaries in Uganda
The government of Uganda imposed a corporate tax rate of 30% on subsidiary companies according to the laws of taxation of foreign subsidiaries in Uganda. The amount of tax levied on the subsidiary company depends upon the annual net income of the subsidiary company. Apart from the corporate tax, the government also imposes a withholding tax of 15% on the company. The withholding tax depends on the profits repatriated to the headquarters of the subsidiary company.
Further, a GST at the rate of 18% is payable on every subsidiary company in Uganda, along with a social security tax that is 10% of the gross salary of an employee of the subsidiary company.
Tax Incentives for Businesses Setting Up a Subsidiary in Uganda
A subsidiary system in Uganda is subject to multiple tax exemptions, deductions, and credits, according to the laws of taxation of foreign subsidiaries in Uganda, as described in brief below:
- Subsidiary companies in the export sector of Uganda that export a minimum of 80% of their products abroad are offered a ten-year tax holiday by the government of Uganda.
- For subsidiary companies in the sectors of scientific research and mineral exploration, the government of Uganda offers a tax allowance at the rate of 100%.
- The government of Uganda has exempted plants and machinery from the imposition of customs duty upon importation. In addition, a facility for the deferral of VAT has been made available for the importation of machinery and plant by the authorities of Uganda.
- The government of Uganda also provides employment incentives for employers who hire disabled employees. Suppose the employer of a subsidiary company can show that a minimum of 5% of the employees are disabled. Employers must ensure that their employees get 2% a deduction of the payable income tax after the incorporation of a foreign subsidiary in Uganda.
Other Important Considerations
After the incorporation of a foreign subsidiary in Uganda, the company had to adhere to a few more laws and regulations to operate legally in Uganda. The checklist for incorporation of foreign subsidiary in Uganda, concerning additional considerations, is given below:
- After establishing a subsidiary business in Uganda, the company has to begin recruiting employees for operating business in Uganda and beyond. Recruit a sufficient workforce from unskilled to high-skilled labor categories for the company’s smooth functioning.
- Create a logo or a stamp to render the business organization with an officially corporate look and feel in Uganda.
- Obtain an official Post Office Box Number in Uganda to exchange parcels and letters.
How Multiplier’s Employer of Record Can Help You Hire & Expand in Uganda
The subsidiary company formation in Uganda may take weeks or even months. Moreover, the process of expanding business to Uganda only begins at the stage of establishing a subsidiary company. After setting up the company, hiring employees, handling the payroll, and providing benefits and compensation to the employees takes an even longer time. Multiplier can accelerate the whole process of establishing a subsidiary business in Uganda.
As a third-party service provider company, Multiplier provides the necessary guidance and assistance with establishing a subsidiary company in Uganda. Multiplier helps with leveraging international talent, acquiring contracts of employment based on local laws, and managing the subsidiary company on behalf of the owner of the business organization. Contact our customer care desk today to learn more about setting up a subsidiary company in Uganda.