Business 26 April 2026 Daily Monitor (Uganda)
Uganda's New 5% Tax on Foreign Lenders: Who Bears the Real Cost?
Parliament's passage of the Income Tax (Amendment) Bill, 2026, introduces a 5% withholding tax on interest paid to foreign lenders, but gross-up clauses in loan agreements mean Ugandan borrowers ultimately foot the bill. This could drive up borrowing costs for critical infrastructure projects in a nation reliant on foreign capital. Source: https://www.monitor.co.ug/uganda/business/finance/who-really-pays-uganda-s-new-tax-on-foreign-lenders--5436794
Uganda’s Parliament has approved the Income Tax (Amendment) Bill, 2026, slapping a 5% withholding tax on interest payments from local companies to overseas lenders. This ends a previous exemption that kept cross-border borrowing affordable.
The nation depends heavily on foreign debt to fund roads, electricity, businesses, and connectivity. With domestic savings at just 24% of GDP, far short of the 40% investment target by 2040, external capital is essential.
Take a simple example: to deliver Shs100 in net interest to a foreign lender, a Ugandan firm must now pay Shs105, with the extra Shs5 going to the Uganda Revenue Authority (URA). Lenders get their full amount unchanged, while borrowers face higher expenses.
This stems from ‘gross-up’ provisions common in international loans, shifting the tax burden back to Uganda. Experts like Ian Mutibwa of SM&CO Advocates note it will inflate debt costs by 5%, potentially deterring investment.
The change follows a 2025 Tax Appeals Tribunal win for Kalangala Infrastructure Services (KIS), which financed Bugala Island projects via loans from Nedbank and the Emerging Africa Infrastructure Fund. URA lost, but the government quickly moved to override the ruling.
URA aims to raise Shs15 billion, arguing Uganda shouldn’t subsidize foreign tax revenues. Critics counter that higher costs could shrink the tax base if projects stall, and Uganda’s 5% rate remains lower than Kenya’s 15% or Tanzania’s 10%.
While double taxation agreements offer some relief, they demand complex setups. The move raises doubts about policy stability for investors.
Source: Daily Monitor (Uganda)