What the Law Says
According to the Income Tax Act, Cap 340, all rental income earned in a financial year is subject to tax. Rental income applies to individuals, partnerships, and companies and is charged on the total rental income (less expenses) across all properties.
For individuals and partnerships:
· First UGX 2,820,000 is tax-free.
· The rest is taxed at 12%.
· No receipts or records needed for deductions.
For companies:
· Allowed to deduct up to 50% of income as expenses (with receipts or supporting documents).
· The balance is taxed at 30%.
Note: URA looks at all your rental income together, not property by property.
Why URA Is Serious About This
URA has set an ambitious UGX 37 trillion revenue target for FY2025/26, of which UGX 400 billion is expected from rental income tax. With systems like the Rental Tax Compliance System (rTCS) and the Electronic Fiscal Receipting and Invoicing System (EFRIS) now extended to rental property owners, compliance is more stringent. URA is using these systems to track landlords by cross-referencing tenant declarations, utility connections (water, power), and online invoices. Basically, if you don’t comply, URA will know.
This means:
More property owners have been added to the tax net.
Non-compliance is now easily detected by URA.
The cost of compliance on the property owner may influence rental pricing creating pressure on both the property owners and tenants.
What are the allowable deductions?
Some expenses that can reduce your tax burden include;
· Cleaning shared spaces (corridors, parking, gardens, etc)
· Paying for security guards
· Utilities for common areas
· Property management fees
· Routine maintenance (painting, repairs, landscaping, etc)
For commercial properties, it is important to note that service charge is not considered rental income. For example: If you collect $11 per sqm as rent and $2 per sqm as service charge, you will only be taxed for the $11 rent portion. Makes sense?
What Happens if You Don’t Pay
Late payment → 2% monthly interest
Failure to file returns → fines + URA’s own assessment (usually higher)
Under-declaring rent → heavy penalties + trigger broader audits on VAT, capital gains, and more
Everyday Scenarios
Case 1: An Individual as a landlord or property owner
· Mr. Mukasa earns UGX 60m from his rentals in a year.
· Deduction (with evidence): UGX 2.82m
· Taxable: UGX 57.18m
· Tax = UGX 6.86m
Case 2: A Company as the landlord or property owner
· Bainomugisha Investments Ltd earns UGX 60m in a year.
· Expenses (with receipts): UGX 28m (Deductions are capped at 50% of income, in this case 30 million).
· Taxable: UGX 32m
· Tax = UGX 9.6m
Other Property Charges You Should Know
Property rates: Paid to KCCA/local councils. Not rental tax, but can be deducted.
Ground rent: Paid to landowners—not a tax.
VAT: Applied if commercial property turnover exceeds UGX 150m annually.
Yes, a landlord may pay one or more of these at once.
What Landlords Should Do
✔ Keep good records of rent and expenses
✔ File tax returns on time
✔ Use URA’s EFRIS for invoices and receipts
✔ Consider hiring a professional property manager. That’s what Broll Uganda does every day. You will be surprised how much stress you will save yourself.
How Broll Uganda Can Help
Managing tax compliance is stressful for many landlords. Broll provides property management services to property owners across residential, commercial and industrial properties. Among the key services that we provide our clients is a dedicated proprietary property management online system that helps to:
· Track leases, rent, and expenses through our online system
· Issue proper invoices that integrate with URA systems
· Ensure you claim all eligible deductions before tax
· Help you stay compliant while maximizing profits
This Broll technology removes the pain of tracking rents and expenses, and ensures all deductions are made prior to taxation to ensure compliance and profitability for our property owners and tenants.
So, DON’T get caught on the wrong side of the law
Paying rental income tax is unavoidable – but with the right management, it doesn’t have to eat into your profits. So, even if it’s “your house,” URA has the hard task of increasing tax collections, and your rental income is taxable business.
Key Points to Remember:
· All rental income is aggregated across a taxpayer’s portfolio. It is not calculated property by property.
· The threshold for rental income tax is UGX 2,820,000. This means that any rental property that generates income more than the threshold within a year is subject to payment of the tax (after appropriate deductions are made).
· Value Added Tax (VAT) is assessed on commercial properties that have an annual turnover exceeding UGX 150,000,000 and is separate from Rental Income Tax.
· Property rates (collected by local governments) are charged on all buildings/ structures except residential owner-occupied homes. It is separate from Rental Income Tax and can be applied as a deduction for rental income tax assessment.
· Ground rent is a payment that is made to the owner of the land, like any other kind of rent and is not a tax.
· It is possible for a single property owner to have to pay one or all of these charges on their property. Having a professional property manager/advisor goes a long way in meeting obligations while maintaining profitability for both property owners and tenants.
