Understanding Basics of Withholding Tax
- Published
- November 9, 2025
- 3 min read
1. In a nutshell, Withholding Tax (WHT) is;
A method in which tax is paid at source, i.e. for every income one receives, tax has already been deducted.
The tax authority (government) devises means to enable it collect taxes more efficiently and WHT is one of them.
With Holding Tax (WHT) in real terms is not a tax on its own. It’s a measure for collecting income tax where by the payer is directed to hold onto a certain portion of the payment to the recipient and remit to the authority this portion on behalf of the recipient.
2. But how best can Withholding tax (WHT) be understood?
To understand WHT, it is good to appreciate the obvious dynamics of tax. Tax, in its simplest meaning, is money paid to the government so that government can pay for public services. Human nature inherently does not like releasing money later on taxes. For instance, you can release money or let go of your hard-earned money maybe to buy food or buy nice clothes you always wanted. There you feel there is a direct benefit for the money you have let go. Sometimes you may release money to go into a charity fund because you are compassionate or release money to support a social cause or to buy some publicity.
In all the above, money is being released out of self-will and there is ease in releasing it (money) because of the direct satisfaction derived. There are also situations where money is released or let go unwillingly. Let say when you have to re-buy a product because the first product you had bought was substandard.
Or even paying money to a party you are compensating let say after any damages done to him/her or paying advance payment to someone whom you are not sure will (may or may not) do a service for you in future.
In the latter scenarios above, you observe they are situations if you could you probably wouldn’t pay even a cent in those situations.
Incidentally tax falls in the latter.
From our definition of tax above, tax involves a person releasing money for something they feel they do not derive a direct benefit from. This creates some sort of reluctance when it comes to paying taxes.
Whereas people enjoy public services in their everyday life, they rarely make a connection to the fact that the taxes paid cater for those services. Given a chance people would rather not release money from their pockets to pay taxes. People feel they are paying out money for a cause they derive no benefit. Thus governments across board find it difficult to get people to pay the correct taxes willingly. People devise all means to reduce money paid out for taxes.
Governments had to devise a method to curb this. This method would ensure tax is actually paid before you receive the money, before you have authority over the money, authority on how to spend it. Tax would be deducted on the payment you are going to receive that is your salary, your sales price etc. This method came to be known as Withholding tax.
In this case you wouldn’t have the difficult choice of slashing off money to pay in taxes. No, you would receive money net of taxes.
Take an example;
Assume the government is paying you for providing a service say a contract to construct a road. Contract amount is Ushs 1,000,000. Instead of giving you the Ushs 1,000,000 and you pay tax yourself, the government shall withhold part of your payment say Ushs 200,000 and pay you only Ushs 800,000. The Ushs 200,000 is the tax you have paid.
This is what we call withholding tax. It is withholding on the full payment you are meant to receive by the payer a portion that shall be known as tax
3. How does this work!? Should I withhold tax on every payment I make to the grocery keeper?
Withholding tax tends to largely operate within the formal business set up i.e. business to business.
But as a matter of fact, all government agencies are required to withhold tax on every payment they make in excess of Ushs 1,000,000. In addition to the government the URA appoints other companies through a formal process informing them to withhold at a certain rate for any payment they make.
Therefore, not every person making a payment is expected to withhold on the payment.
However, for any person whether designated by URA or not, making a payment to a non-resident of Uganda for that matter a foreigner for services performed in Uganda, that person shall with hold on the payment made. In most cases the foreigner has no other businesses in Uganda and hence this acts as a final tax or the only tax to pay.
WHT is used to ensure income earners who are not resident in Uganda that earn one off payment pay tax within Uganda where they have earned it.
4. So why do companies and individuals have to pay tax at the end of the year if tax has already been withheld at source?
Whereas through WHT some tax has been paid already, every individual/company is required to prepare accounts on the full income for the whole year and compute their tax using applicable rates.
Not all payments will have been subject to WHT, as we shall see later how the concept of Exempt from WHT operates to exempt some payment recipients from WHT. Besides, the WHT rates are not a complete reflection of the final tax rates.
For that matter, after computing your tax on the full year’s taxable income, the taxpayer is allowed to the WHT that was withheld at source.
Let say from the previous illustration we compute corporation tax on income of 1,000,000 at 30% rate giving me tax to pay of 300,000. Instead of paying the whole 300,000 I will first deduct the WHT held at source of 200,000. This implies I will only pay 100,000 on the taxes payable
As noted above there are two key concepts under WHT
- With Holding Tax agent
- Exempt from With Holding Tax
a) Withholding tax agent
An agent is any person as per the Income Tax Act designated in a schedule/list to withhold tax on all payments made.
This list is drafted by the commissioner of URA/Minister of Finance and there is no criteria known to the public that is followed to have companies/individuals designated as agents. However, these tend to be taxpayers who have streamlined bookkeeping and have significant operations/big businesses.
As noted earlier, all government agencies are withholding tax agents.
b) Exempt from With Holding Tax
Some businesses do business entirely with bigger companies who are agents and governments.
If you are a businessperson, you need cash flows within your business and profits as well. As governments and companies who are agents withhold tax at 6% on every payment of goods they make, when considered keenly, this is the profit margin a businessperson also wants to make.
Therefore, let’s say if all sales made were to withholding tax agents it would imply all profit made was withheld in taxes. Businesses do not exist to pay taxes. Therefore, much as governments want taxpayers to pay taxes in advance through WHT it may be so devastating for businesses.
For that matter the concept of WHT Exempt was borne. It is simple, where URA is convinced that at the end of the year you will pay all your taxes fully without any problem they give you a status where no one can withhold on your payments can.
URA gets convinced that you will pay your taxes by looking at your previous payments and tax compliance, if everything is clean then your application to be exempt from WHT is considered and you are put on the list of WHT exempt companies.
What this means is whenever you invoice you may state clearly on the invoice that you are WHT exempt and thus no tax shall be withheld. The payer is supposed to check on the schedule of WHT exempt list to confirm whether truly you are exempt.
Therefore;
Any person receiving a payment from a designated Withholding tax agent shall have his/her income subject to WHT at different rates depending on the kind of payment UNLESS the person is exempt from WHT by the commissioner (URA)
6. Key payments to think about and the various rates
As noted above WHT is paid at source.
a) Salaries
A special system exists for salary payments called PAYE (Pay As You Earn). PAYE is a withholding tax system whereby employers withhold tax on salaries to be paid to their employees.
In most cases salaried people have salary as their only income hence the amount withheld under PAYE is also the final tax.
Different rates apply depending on how much you earn.
In summary, the following are the prevailing rates
- There is an exempt threshold for persons earning 235,000 or below
Exceeding 235,000 but not exceeding 335,000 | 10% of amount exceeding 235,000 |
Exceeding 335,000 but not exceeding 410,000 | 10,000 + 20% of amount by which chargeable income exceeds 335,000 |
Exceeding 410,000 | 25,000 + 30% of the amount by which chargeable income exceeds 410,000 |
exceeding 10,000,000 pm an additional 10% is charged |
b) Other payments for goods and services to Uganda suppliers
WHT at 6% should be applied to all payments above Ushs 1 million by entities designated as WHT agents to all WHT non-exempt suppliers of goods and services who are Ugandans or tax residents for that matter.
c) Importation of goods
For any importation of goods at the point of entry a WHT of 6% of the amount used for customs purposes is paid
d) Professional and management fees
There is a distinction when it comes to professional and management fees. Not only should WHT agents withhold but for any person paying an amount (any amount whether above or less 1,000,000) to a professional or management fees such person shall withhold tax at 6%.
A professional has a meaning of an accountancy services, legal services and others of a sort.
e) International payments
A rate of 15% shall be applied on payment for services by foreign suppliers where a double tax agreement doesn’t exist
f) Dividends, Interest and interest on government securities
Dividends and Interest paid shall have a WHT at the rate of 15% .
Where interest is interest earned on government securities such as treasury bills WHT shall be at 20%.
In addition, interest paid to non-residents is at a rate of 20%.
Interest earned by financial institutions is exempt from WHT
g) Wins on sports bets
Payments on betting wins shall have WHT applied on them at the rate of 15%
h) Entertainers and sportsmen
For payments made to entertainers and sportsmen from foreign countries WHT shall be applied and the agent remits it within 5 days of the payment at a rate of 15%
7. Time of remitting Withheld tax
For all withheld taxes, after withholding tax the agent should file a return online with URA declaring details of all amounts withheld and remittance of the amount withheld should be made by the 15th day of the next month following the month in which withholdings were made.
There are penalties for an agent who fails to withhold tax on payments and for any amount withheld and not remitted on time the agent shall incur interest on the amount not remitted.
8. What else do I need to Know
Note;
WHT rates on payments to foreign persons may vary depending on whether such a country has Double tax arrangements with Uganda.
The tax is remitted as noted above by filing a return and making payments.
Parties/ Companies from whom tax has been withheld are entitled to a WHT tax credit certificate which shall act as evidence of tax paid when computing final income tax and shall be used to reduce the tax payable.
However in cases where companies have made losses and there is no tax payable or the WHT held is over and above the tax payable, a cash refund from the authority may be claimed. A tax audit is likely to be conducted by URA before such refunds are done.
Finally, the above is a basic introduction to WHT, there is a lot on the practical perspective and always consult when it comes to taxes to avoid costly avoidable mistakes
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