A supply of services by a person outside Uganda to any person inside Uganda is considered an import of a service by the recipient of the service in Uganda. Under the VAT law, the recipient of the service is required to pay VAT to URA, whether or not the person is VAT registered. The VAT payable is 18% of the amount paid or payable for the service provided by the non-resident service provider. The VAT paid is output tax and the amount cannot be reduced by way of an offset or credit. It therefore becomes an extra cost to the taxpayer. Failure to account for the VAT attracts penalties.

However, separate rules apply for particular kinds of cross-border services supplied to persons in Uganda and two situations are distinguished i.e. services provided in a business-to-business transaction where the recipient is a taxable person; and services provided in a business-to-consumer transaction where the recipient is not a taxable person. The law also provides a few exceptions for specific categories of supplies to non-VAT-registered persons.

Any person who pays for services provided by a non-resident person from outside Uganda and consumed or received by the person inside Uganda should therefore take note of this to avoid additional tax assessments and penalties from URA. The diagram below is a simplified illustration of when VAT on imported services becomes applicable.

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