Can URA Impose a Minimum Salary on Company Directors for Tax Purposes?

URA taxes on salaries

10/11/20263 min read

Can URA Impose a Minimum Salary on Company Directors?

A Tax Concern for Foreign Investors in Uganda

Uganda offers attractive opportunities for foreign investors, but some aspects of its tax administration raise important questions, particularly concerning company directors, minimum salaries and historical tax liabilities.

Can the Uganda Revenue Authority (URA) decide how much a company director should earn and demand tax on a salary that was never received?

And can tax liabilities from companies that have been inactive for a long time affect a director’s personal tax compliance or residence application?

These questions deserve clear answers.

Can URA Decide a Director’s Salary?

Foreign company directors may be questioned about whether their declared salaries are sufficient to support their living expenses in Uganda.

However, having enough money to live in Uganda does not mean that money comes from a Ugandan salary.

Many foreign entrepreneurs support themselves through pensions, savings, investments, rental income or inherited assets abroad.

Others deliberately pay themselves modest salaries to keep their businesses financially sustainable.

Uganda’s Income Tax Act defines taxable employment income, but it does not appear to establish a universal minimum salary for foreign company directors.

The key question is whether URA can impose tax on an assumed salary rather than remuneration actually earned or legally treated as income.

The Hidden Risks of Dormant Companies

A company that stops operating does not automatically cease to exist for tax purposes.

Unless formally deregistered, it may continue to have filing obligations, potentially resulting in outstanding assessments and penalties.

For entrepreneurs who have established several companies over the years, this can lead to unexpected tax demands long after business activities have stopped.

But should a director automatically become personally responsible for a company’s historical tax liabilities?

Ugandan law provides for certain responsibilities and potential liabilities of company directors, but being a director does not necessarily make someone personally liable for every company tax debt.

Ho far can URA Go Back?

Uganda’s tax legislation provides time limits for additional assessments, with exceptions in certain circumstances.

Tax demands relating to earlier financial years therefore require careful examination.

Taxpayers should be entitled to clear information about the periods concerned, the calculations involved and the legal grounds for reopening historical tax matters.

When Company Taxes Affect Personal Residence

For foreign entrepreneurs, tax compliance can have consequences beyond taxation.

Outstanding company liabilities may complicate applications for personal tax-compliance documentation required for immigration or permanent residence.

This raises another question:

Should unresolved company tax liabilities prevent an individual director from obtaining personal tax clearance, particularly when those liabilities have not been established as personal debts?

Clear rules and transparent procedures are essential.

What Foreign Investors Should Know

Foreign company directors should document their remuneration arrangements, maintain evidence of independent financial resources and ensure that inactive companies are properly deregistered.

When URA raises unexpected tax demands, taxpayers should request written explanations identifying the relevant tax periods, calculations and legal provisions.

Formal assessments can be challenged through established objection and appeal procedures, subject to strict deadlines.

Greater Clarity Is Needed

Foreign investors need predictable tax rules, particularly concerning three fundamental questions:

Minimum salaries: Can URA impose a minimum salary on a foreign director, regardless of actual remuneration or other financial resources?

Historical liabilities: Under what circumstances can directors become personally responsible for taxes owed by dormant or closed companies?

Tax compliance: Can outstanding company liabilities affect an individual’s personal tax-compliance status and immigration applications?

Uganda has made significant efforts to attract international investment. Clear and consistent tax administration is essential to maintaining that confidence.

Taxation should be based on clearly established legal obligations, not assumptions about what a company director should earn.

Greater transparency on these issues would benefit foreign investors, Ugandan businesses and URA alike.

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Disclaimer: This article is intended to encourage informed discussion and does not constitute legal or tax advice.

References:

Uganda Income Tax Act — Section 19 (Employment Income)

Uganda Tax Procedures Code Act — Tax Representatives, Assessments and Objections

Uganda Revenue Authority — Employment Income and PAYE

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