” TAX ALERT “
On 23 May 2025, the Uganda Revenue Authority (URA) issued a public notice mandating all Deposit-taking Institutions, Custodial Institutions, Investment Entities, and Specified Insurance Companies under the Automatic Exchange of Information (AEOI) Standard to submit AEOI Returns to the Competent Authority (URA) by 31 May 2025.
This article provides a comprehensive overview of the legal framework underpinning the AEOI obligations, the entities responsible for compliance, the specific requirements imposed, and the consequences of non-compliance in Uganda.
In this edition, SM&Co. Advocates tax team dissects the impact of the AEOI on general tax compliance and the impacts it may have on the entities obligated to comply with the law.
Legal Framework Scope of the Law
Uganda’s commitment to global tax transparency is rooted in its participation in two key international agreements:
1. Convention on Mutual Administrative Assistance in Tax Matters: Signed on 6 May 2016, this multilateral treaty facilitates cooperation among tax authorities to combat tax evasion and avoidance.
2. Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information: Signed on 18 November 2018, this agreement operationalizes the exchange of financial account information among signatory countries.
These treaties were domesticated through the Convention on Mutual Administrative Assistance in Tax Matters (Implementation) Act, Cap 335 (“the Act”), granting them the force of law in Uganda.
The Act aligns with the Common Reporting Standard (CRS) developed by the Organisation for Economic Co-operation and Development (OECD), which sets the global standard for AEOI.
The primary objective is to curb tax evasion resulting from the international movement of persons, capital, goods, and services by enhancing cooperation among tax authorities.
Scope of the Law
The Act targets Reporting Financial Institutions (RFIs), which include:
• Custodial Institutions: Entities that hold custody of financial assets for others.
• Depository Institutions: Entities such as banks that accept deposits.
• Investment Entities: Entities engaged in investment activities, including managing portfolios or collective investment schemes.
• Specified Insurance Companies: Insurers offering products with investment components, such as cash-value insurance or annuity contracts.
Exemptions apply to certain entities, including government bodies, international organizations, central banks, and retirement funds, which are classified as Non-Reporting Financial Institutions.
Obligations Under the Act
1. Due Diligence Requirements
RFIs are required to conduct due diligence to identify Reportable Accounts, defined as accounts held by:
• Individuals or entities that are tax residents of jurisdictions participating in the AEOI framework (other than Uganda, unless specified).
• Pre-existing entity accounts with a balance exceeding USD 250,000 as of 31 December of any calendar year.
The due diligence process involves:
• Reviewing pre-existing individual accounts and new individual accounts.
• Reviewing pre-existing entity accounts and new entity accounts.
• Identifying accounts held by non-residents or entities with controlling persons who are reportable (e.g. tax residents of another jurisdiction).
• Verifying account holder information, such as Tax Identification Numbers (TINs), residency status, and account balances.
RFIs must retain due diligence records for the duration the account remains open and for five (5) years after account closure.
2. Reporting Obligations
RFIs are required to submit AEOI Returns to the URA, the designated Competent Authority, by 31 May of the following calendar year for accounts held in the previous year ending 31 December. For the 2024 calendar year, the deadline was 31 May 2025.
The information to be reported includes:
• Name, address, and TIN of the account holder.
• Date and place of birth (for individuals).
• Place of incorporation (for entities).
• Account number and balance or value as of 31 December.
• Name and identifying number of the RFI.
• Income attributable to the account (e.g., interest, dividends, or other income).
If an RFI conducts due diligence and identifies no Reportable Accounts, it must file a nil return confirming the absence of reportable accounts for that calendar year.
3. Automatic Exchange of Information
The Act facilitates the automatic exchange of financial account information with other signatory jurisdictions on an annual basis. This exchange ensures that tax authorities in participating countries receive relevant data to verify tax compliance by their residents. The information exchanged mirrors the data reported in AEOI Returns, ensuring consistency and transparency across borders.
Penalties for Non-Compliance
Non-compliance with AEOI obligations carries significant
penalties:
• Failure to File Returns: RFIs that fail to submit AEOI Returns by 31 May face a civil penalty of 250 currency points (UGX 5,000,000) per day of default.
• False or Misleading Statements: Submitting false or misleading information in AEOI Returns incurs a fine of up to 2,500 currency points (UGX 50,000,000), imprisonment for up to ten years, or both.
These penalties underscore the importance of timely and accurate compliance to avoid substantial financial and legal consequences.
Impact on Financial Institutions
The AEOI framework imposes significant operational and compliance obligations on RFIs, including:
• Enhanced Data Collection: RFIs must collect and verify detailed account holder information, particularly for non- residents and entities with complex ownership structures.
• System Upgrades: Compliance may require investments in technology and systems to track, process, and report account data securely.
• Increased Administrative Costs: The due diligence and reporting processes demand dedicated resources, including trained personnel and compliance teams.
• Reputational and Financial Risks: Non-compliance risks hefty fines, legal action, and reputational damage, which could affect customer trust and business operations.
To mitigate these challenges, RFIs are advised to:
• Implement robust compliance programs to ensure accurate due diligence and reporting.
• Train staff on AEOI requirements and CRS standards.
• Leverage technology to automate data collection and reporting processes.
• Conduct regular audits to verify compliance with the Act.
Broader Implications
The implementation of AEOI in Uganda reflects the country’s commitment to global tax transparency and aligns with international efforts to combat tax evasion.
By participating in the CRS, Uganda enhances its reputation as a cooperative jurisdiction, potentially attracting foreign investment while ensuring that tax obligations are met both domestically and internationally.
However, RFIs must balance compliance costs with operational
efficiency to maintain competitiveness in the financial sector. Given the severe penalties for non-compliance, financial institutions must prioritize adherence to due diligence and reporting obligations.
By doing so, they contribute to a transparent and equitable global tax system while safeguarding their operations from legal and financial risks.
Disclaimer:
This publication is for general consumption and should not be taken and relied upon without seeking specific legal advice on any of the matters above.