Free Zones in Uganda

Uganda finally caught up with the rest of the world in 2014 when the President of Uganda, HE Yoweri Kaguta Museveni assented to The Free Zones Act, 2014. Other East African countries had already initiated the operation of free zones. In Kenya, the law was operationalized in 1990 whereas, in Tanzania, Special Economic Zones have been in existence since 2002 following the enactment of the Export Processing Zones Act 2002 and Rwanda, since 2010.

The Uganda Free Zones Authority, a body corporate supervised by the Ministry of Finance, Planning, and Economic Development started its operations on 1st September 2014. The Uganda Free Zones Authority is responsible for the establishment, development, management, marketing, maintenance, supervision, and control of free zones and to provide for other related matters.

The Free Zones Act defines a Free Zone as a designated area where goods introduced into the designated area are generally regarded, so far as import duties are concerned, as being outside the customs territory and includes an Export Processing Zone or Free Port Zone. Largely, Free Zones are Customs controlled areas where raw materials, goods, plants, and machinery may be landed, handled, manufactured, or reconfigured for export without being subject to import and export duties. These have been responsible for the fast-tracked development of countries like the United Arab Emirates.

Unfortunately, many Ugandans do not know about the free zones and there is a large assumption that it is only open to foreigners. Like other free zones in the world, the Free Zones Law in Uganda is intended to increase exports from Uganda, encourage factories to set up in Uganda to provide processing and packaging thereby reducing on exporting of raw materials. For example, instead of exporting coffee beans, the Nescafe processing factory is set up in the free zone and we export Nescafe. This will automatically increase employment opportunities for Ugandans. The overall objective for the adoption of Free Zones in the country is to create an enabling environment aimed at enhancing economic growth and development of export-oriented manufacturing in all sectors of the economy, in order to diversify the country’s economic base, attract foreign direct investment (FDI), generate employment, increase foreign exchange earnings, enhance technology transfer, skill acquisition/upgrading as well as create backward linkages.

Both local and foreign Business Enterprises are eligible to be licensed to develop and operate in Free Zones as long as their companies meet the requirements. The requirements are that the company must be registered or incorporated for the sole purpose of developing and operating a Free Zone in Uganda, the company must have an adequate equity base and access to capital to enable it to develop a Free Zone or operate in a Free Zone and the activities of the projects for which the Developer or Operator seeks the Licence must be commercially viable and must be based on a suitable and credible Business Plan.

Existing industries can also be licensed as free zones provided they meet the licensing requirements that they can demonstrate an increase in new investment, adoption of new technologies, expansion of jobs, and other criteria set out in the Act. Existing companies manufacturing for export also qualify to be licensed as Free Zones on condition that they meet the set requirements prescribed in the Act, one of which is to be registered for the sole purpose of operating in a Free Zone.

The Government of Uganda has provided a comprehensive package of incentives for holders of Free Zone Developer, Operator, or Manager Licenses. These include:

Fiscal Incentives

  1. 10-year Income Tax Exemption for Free Zone Developer whose investment capital is at least USD 50,000,000 (United States Dollars Fifty Million)from the date of commencement of business.
  2. 10-year Income Tax Exemption for Free Zone Operator whose investment capital is at least USD 10,000,000 (United States Dollars Ten Million)for Foreigners and USD 2,000,000 (United States Dollars Two Million) for Ugandan Citizens from the date of commencement of business.
  3. Exemption from taxes and duties on all Export Processing Zone imported inputs that are for the exclusive use in the development and production output of the business enterprise (raw materials and spare parts).
  4. Unrestricted remittance of profit after tax.
  5. Exemption from tax on income from Agro-processing.
  6. Exemption on income derived from the operation of aircraft in domestic and international traffic or the leasing of aircraft.
  7. Exemption from tax on plant and machinery used in the Free Zones for 5 years and 1 day upon disposal.
  8. Exemption from all taxes, levies, and rates on exports from the Free Zones.
  9. Exemption from import duties and taxes on all goods entering a Free Port Zone.
  10. VAT exemption on the following supplies i.e. animal feeds and premixes crop extension services, irrigation works, sprinklers, and ready-to-use drip lines, deep cycle batteries, and composite lanterns.
  11. Exemption of Withholding Tax on petroleum, petroleum products, plant and machinery, human or animal drugs, and supply/ importation of raw material.
  12. Initial allowance for eligible property/industrial buildings situated 50Km from Kampala put into use for the first time (rates are 50% and 20% respectively).

Non-fiscal Incentives

  1. Access to physical amenities, infrastructure, manpower, and training.
  2. Warehousing of domestic goods which are not to be exported provided that the Warehousing facilities of the Free Zone users are underutilized.
  3. One-Stop Center for reducing Red Tape Simple procedure.
  4. On-site customs inspection of buildings and premises in the Free Zone.

We look forward to working with companies that want to invest in Uganda and operate in the Free Zones. Already the Free Zones have been set up in Luweero, Nakaseke, Mbale and other others will soon be operationalized.

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