JOSHUA KATO: Are you a Freelancer in Uganda?

The gig “economy” also known as the sharing or access economy refers to a labor market where individuals often work on a freelance or independent contractor basis, taking up individual tasks or “gigs” rather than being employed in traditional full-time jobs. In this model, workers are paid for the specific tasks they complete, as opposed to receiving regular salaries. Gig-workers make money by performing services or carrying out tasks on and as when needed basis. The African gig economy is estimated at USD 900 billion dollars as cited by Neha Pandya, the COO Flip Africa.

In Uganda just like other African countries, the high levels of unemployment, the COVID-19 pandemic have been some of the underlying factors that have made the youths fully embrace the “Gig Economy” and the increased developments in digital technology has led to the birth of Safe-Boda, Jumia Food, Kikuubo Online, Jiji, online influencers, digital marketing and consulting etc.

In the U.S, Pew Research Center showed 16% of U.S. workers who have earned money through an online gig platform like Uber, DoorDash or Instacart. It seems somewhat an economy type that is here to stay!

In the dynamic landscape of modern work where there is an opportunity to be your own boss or simply to make some extra cash, freelancing has emerged as a viable avenue for individuals to harness their skills and create a flexible income stream. Sounds enticing! Right?  Surprisingly this freedom comes with more complicated tax obligations than you typically have as a traditional employee who is subjected to PAYE. It’s easy to slip and end up on the hook for unexpected taxes from the URA — as well as interest and penalties — especially when you’re new to gig work.

While freelancers enjoy the benefits of autonomy and flexible work arrangements, this article explains the distinct tax responsibilities and tax implications that come with this mode of employment.

In Uganda, the tax system for freelancers is influenced by so many factors among which include your income levels, deductions, and the nature of services rendered. 

1. Income Tax.

Just like any other taxpayer, income derived by freelancers is subject to income tax. Currently, the income tax rates for individual taxpayers, including freelancers, are structured as follows against the chargeable income.

Up to 235,000 Ugx – No tax

235,001 to 335,000 Ugx – 10% tax rate

335,001 to 410,000 Ugx – 20% tax rate

410,001 to 10,000,000 Ugx – 30% tax rate

Above 10,000,000 Ugx – 40% tax rate

It’s essential to consider that these rates can change, and freelancers should stay updated on any amendments made by the Ugandan government.

2. Value Added Tax (VAT)

VAT is a consumption tax levied on the value added at each stage of the supply chain in the production and distribution of goods and services. Depending on the services provided, freelancers may be required to register and charge Value Added Tax (VAT) on an invoice. VAT in Uganda is at a rate of 18%. Some products/services are VAT exempt, VAT deemed or VAT standard rated. Before you involve in the supply of any, consult a tax expert for advice to help you ascertain whether what you are offering falls under the scope of VAT regulations.

3. Withholding Tax (WHT)

WHT is a tax type deducted at the source before payment is made to the recipient. The government ensures that taxes are collected on certain types of income, such as interest, dividends, royalties, and payments to contractors where freelancers fall. WHT is applicable when aggregated amount payable exceeds the threshold of one million shillings. The WHT rate is 6% when a resident consumer makes payment to a resident freelancer. This changes when a transaction involves a non-resident whose WHT tax rate for professional, management, and consultancy services is 15%.

4. Social Security Contributions

Freelancers in Uganda may also voluntarily contribute to the National Social Security Fund (NSSF). The NSSF provides social security benefits to eligible individuals. This contribution is typically calculated based on a percentage of the individual’s gross earnings. While this isn’t an income tax, it’s an important financial consideration for freelancers to factor into their budget.

Illustration.

Zamu Namakula a Ugandan freelancer earns 5,000,000 Ugandan Shillings in a year of income. Let’s have her basic breakdown of her potential tax liabilities

1. Income Tax (30% on earnings above 410,000 Ugandan Shillings) = 0.30 x (5,000,000 – 410,000) = 1,317,000 Ugandan Shillings

Depending on Zamu’s specific circumstances, she might also need to account for VAT, withholding tax if applicable, and any other applicable taxes.

1. Where a company A (A withholding tax agent) has contracted Zamu to offer her freelancing services and pays her Ugx 5,000,000 

WHT = (6% on Ugx 5,000,000) = (0.06 x 5,000,000) = Ugx 300,000

Therefore, you must adopt a proactive approach as an influencer by knowing that much as no one controls you, you have a tax obligation to the following; –

• To Stay Informed of any changes to tax rates or regulations in Uganda to ensure top notch compliance.
• To maintain and keep proper records of your income, expenses, invoices, and receipts. This documentation will be important during tax filing.
• To budget for Taxes by factoring in your tax obligations when setting and charging your rates to your customers. Protect yourself from surprises when tax season arrives.
• Consult tax professionals or accountants to help you optimize your tax strategy and minimize potential issues.

The writer is a Chartered Tax Accountant with Uganda Baati Limited