DOMESTIC AND FOREIGN INVESTMENT IN UGANDA UNDER THE INVESTMENT CODE ACT NO. 6 OF 2019.

Legal aspects every investor needs to know

Introduction

Investment in Uganda is regulated by the Investment Code Act No.6 of 2019 which is the principal legislation on both domestic and foreign investments. The Act repealed and replaced the Investment Code Act cap 92 which had been in force since January 1991. The Uganda investment authority is the government agency responsible for the facilitation of the investment process in Uganda. The authority which is mandated to coordinate, encourage, promote, and facilitate investment in Uganda among its core objects is responsible for registering and licensing of investments.

Definition of investment

Investment means the creation or acquisition of business assets and services with a view to generate future higher value and includes the expansion, restructuring or rehabilitation of an existing business enterprise. A business enterprise includes a manufacturing enterprise, a tourist enterprise, a commercial or agricultural venture and a service enterprise.

Domestic and foreign investors

An investor includes a foreign investor and a domestic investor. Thus, investment in Uganda is open to both domestic and foreign investors. A foreign investor means a natural person who is not a citizen of the East African Community Partner state; a company incorporated under the laws of any country other than that of an East African Community Partner state; a company incorporated under the laws of Uganda in which majority of the shares are held by a person who is not a member of an East African Community Partner State or a partnership in which the controlling interest is owned by a person who is not a citizen of an East African Community Partner state and holding an investment license issued under the Act.

A domestic investor means a natural person who is a citizen of the East African Community Partner state; a company incorporated under the laws of an East African Community Partner state in which the majority of the shares are held by a person who is a citizen of an East African Community Partner state or a partnership in which the controlling interest is owned by a person who is a citizen of an East African Community Partner state and holding an investment license issued under the Act.

Investment certificate

An investor is required to apply to the authority so that such investor is registered and issued an investment certificate/ investment license. The words investment certificate and investment license are used in the Act interchangeably and accordingly refer to the same document. Investment license was the key word used in the repealed Act and the Investment Act 2019 adopts the words investment certificate instead. The Act specifically provides that any investment license issued under the repealed Act shall continue in existence as an investment certificate under the Act.

The law provides a process for an investor to register an investment and acquire an investment certificate to enable that investor run an enterprise

in Uganda. It is mandatory for a foreign investor to first register and acquire an investment license before commencing any operations. Contravention of this requirement attracts both pecuniary and penal sanctions. An investor must satisfy the minimum investment capital for domestic investments (US$50, 0000) or foreign investment (US$100, 000)   to qualify for registration and issuance of an investment license.

Procedure for processing an investment certificate

Application for the investment certificate is made to the Uganda Investment Authority. The application is accompanied by a certificate of registration of the business; environmental impact assessment certificate; the projected number of employees; license granted by the business sector in which the investor intends to operate;  business plan (which includes the name of the investment and detailed information on the type of investment, the action plan, the date of commencement of operations, detailed information on the raw materials sourced in the country or in the locality where the investment is to operate, land requirements, location, utilities and market survey, details of the projected  technology and knowledge transfer).

An investor who fulfills the registration requirements is issued an investment certificate specifying the terms and conditions of issue and the period within which the investment should commence.

Duration of an investment certificate

The certificate once issued is valid for the period specified in that certificate and where operations do not commence within that specified period, the investment certificate automatically lapses.

Amendment of an investment certificate

An investor who changes the name or address; nature of the business activity specified in the certificate or shareholding of the investment is required to immediately apply to the authority for amendment of the certificate, specifying reason for such changes. The applicant may also be asked to give more information or particulars by the authority.

Revocation of an investment certificate

An investment certificate may be revoked where the investor to whom it has been granted breaches the conditions set out in that certificate; acts in contravention of the Act or any other law under which a relevant permit or license has been issued or acts in such a way as to tarnish the good repute of Uganda as an attractive base for investment. The person may be given a thirty days written notice to give a good reason why the certificate should

not be revoked.

Secondary permits

Important to note is that apart from the investment certificate, an investor will also require secondary licenses, permits, approvals and clearances for doing business in Uganda required in the particular sector where the investments is being done for example; trade license, certificate of tax registration, work permit, tax clearance certificate, certificate of environmental clearance among others.  There are some sectors which also require regulatory approvals from their relevant entities for example energy generation, mining, banking, air transport, pharmaceutical  production, education and health. In such a case the regulatory approvals, permits or licenses must be acquired before applying for an investment license.

Priority areas of investment

An investor has a range of investment opportunities and the law sets out various priority areas  which include, agro processing, food processing, medical appliances, building materials, lighting industry, automobile manufacturing and industry, house hold appliances, furniture, logistics and ware housing, information technology, commercial farming, tourism, steel industry, chemical industries, textiles and leather industry, oil milling industry, paper production, mining industry, glass and plastic products industry, ceramic industry, construction and building industry, real estate development industry, packaging industry, transport industry, pharmaceutical industry  and telecommunication industry. Investment in these priority areas attracts investment incentives.

Incentives and national content

An investor will qualify for incentives if that investor meets the minimum investment capital for investments as required in the relevant Acts of Parliament; engages in any of the set priority areas; exports a minimum of eight percent of the goods produced; provides for substitution of thirty percent of the value of imported products; sources locally seventy percent of the raw materials used in the investment; directly employs a minimum of sixty percent citizens or introduces advanced technology or up grading of indig enous technology.

The law therefore promotes national content. National content is the value added or created in the Ugandan economy through the employment of Ugandan workers and the use of goods produced in Uganda or available in Uganda and services provided by Ugandan citizens and enterprises. An investor who qualifies for incentives is issued a certificate of incentives by the authority stating the law under which the investor has been given the incentive and detailed particulars of the incentives.

Investment in scarce resources

Investment may also be permitted in scarce resources and may be limited to a number of investors where only a limited number of investors can be allowed to exploit the scarce resource in an optimal manner.  Scarce resources are non-renewable resources or resources renewable over a long period of time and whose utilization is restricted or controlled. They include investments in mining; petroleum exploration and production; fishing; forestry and tourism such as wildlife and concessions in national parks. Complementary role of other government agencies Government ministries, departments and other agencies are required to cooperate with the authority while performing their functions relating to registration, licensing and approval of establishment of investments and give an investor who has been registered and given an investment certificate priority when such investor applies for a secondary permit from these agencies.  A secondary permit means any other approval required for carrying out business in Uganda other than an investment certificate.

The law requires that such investor should be issued the necessary license, permit or approval within a reasonable time but in any case within a period not exceeding fourteen days from the date of receipt of the application. These agencies therefore have a complementary role in the broader objective of supporting and facilitating investment in Uganda through the creation of an enabling business

environment

Such government agencies include, The Uganda Registration Services Bureau for company registration; Uganda Revenue Authority for tax advice and registration; National Environment Management Authority to facilitate the investor in environmental compliance; Uganda National Bureau of Standards for certifying standards and quality of goods , Directorate of Citizenship and Immigration for issuance of work permits, visa extensions, special passes, dependent passes, certificates of residency; Directorate of Lands Registration for land occupancy, registration of interest in land including industrial parks and other facilities; Kampala Capital City Authority and local governments for trading and occupational permits; National Identification and Registration Authority for registration of all citizens in Uganda and all non-citizens who are resident in Uganda , Uganda Free Zones Authority for licensing operations in Uganda’s free trade zones, National Social Security Fund for registration of employers and employees for NSSF among others.

Investors continuing obligations

The law imposes obligations on a registered investor to observe and adhere to the laws of Uganda; to implement the proposal in accordance with the business plan submitted at the time of application for a license; to keep proper financial and accounting records; to keep data relating to operations of the investment enterprise for a period of seven years ; periodically avail the books of accounts to the body responsible for taxation; to register with the tax administration and file timely tax returns even in case of entitlement to tax  exemption among others.

The investor is also required to permit the authority or its employees or agent’s reasonable access to monitor the operations of the business enterprise.  It is an offence for an investor or his agents to refuse or neglect to provide information or a service as required or to refuse without lawful excuse to admit an office or an agent of the authority into the investment premises or to obstruct inspection.

Protection of investor in cases of compulsory acquisition of investment

Investments are protected from expropriation by protective provisions in case of compulsory acquisition. This protection covers the registered business enterprise of an investor or an interest or right over any property or undertaking forming part of that enterprise. Prompt payment of fair and adequate compensation must be made prior to the taking of possession of the property and a person whose investment is acquired has a right to access a court of law in respect of any matter arising out of the taking possession of the property. Compensation paid out to the investor is freely transferable out of Uganda without being subjected to exchange control restrictions under the Foreign Exchange Act, 2004.

Resolution of investment disputes

There is also a well-defined dispute settlement procedure in case a dispute arises between an investor and the authority or the government in respect of a registered business enterprise. The law requires that all efforts shall be made to settle the dispute through negotiations for an amicable settlement in accordance with the Arbitration and Conciliation Act. Where the negotiations fail, the dispute will then be submitted to arbitration in accordance with the arbitration method agreed by the parties.

The investment license in respect of a registered business enterprise will usually specify the particular mode of arbitration to be resorted to incase of a dispute relating to that enterprise and that specification constitutes the consent of government, the authority, or their respective agencies and the investor to submit to that mode and forum of arbitration. The modes of arbitration include the procedures for arbitration provide for under the Arbitration and Conciliation Act; the rules of procedure for arbitration of the International Centre for the Settlement of Investment Disputes; or the framework of any bilateral or multilateral agreement on investment protection to which the Government and the country of which the investor is a national are parties.

What changed in the law?

The following are the material changes that an investor needs to know.  Categorization of investors into domestic investors and foreign investors.

The law introduced a concept of domestic investors which did not exist in the repealed law. A domestic investor extends to persons (individuals and entities) within the east African community partner states as earlier seen.

Liberalization of investment in respect to foreign investors. There is liberalization of investment and foreign investors are free to engage in any business unlike previously where s.10 of the repealed Act prohibited foreign investors from engaging in any business of crop and animal production or acquiring any interest in land for purposes of crop or animal production.

Incentives made discretionary.

Incentives were specified in the repealed Act, s.11 allowed an applicant to specify which incentives the applicant expected to qualify for and the details of such qualification, the 2019 Act however does not specify the incentives available to investors and an applicant can no longer list the incentives that applicant qualifies for; instead, the incentives are indicated in the invest ment certificate at the discretion of the issuer.

Investments in certain sectors no longer disqualify a foreign investor from incentives.

Additionally engagement in certain activities which were specified in the repealed Act no longer disqualifies a foreign investor from receiving incentives. Under the repealed act, foreign investors who engaged in wholesale and retail commerce, personal service sector, public relations business, car hire services and operation of taxis, bakeries, confectioneries, and food processing for Ugandan market only, postal services, professional services were disqualified from enjoying externalization of funds incentives.

Removal of extension of validity of investment license. Provisions on extension of validity of an investment certificate were scraped off from the law, the repealed law provided for extension of validity of an investment license on application by an investor who failed to commence operations on the date of commencement of validity of the license. Under the 2019 Act, where an investor does not commence business on the commencement date, the investment certificate automatically lapses.

The Act also no longer gives an investor who has applied for an investment certificate chance to agree on the terms and conditions in the license, the authority is given powers to issue a license with terms and conditions without having to agree with the investor on the terms.

Processing of applications has also been made easy and speedy. The applicant is expected to get the investment license within five working days compared to the previous law which gave the authority up to ninety days before an applicant was allowed to lodge a complaint in respect to delayed issue of a license.

Finally the Act has also created a continuing obligation on the investor that did not exist in the repealed law; an investor is required to keep data relating to operations of the investment enterprise for a period of seven years.

Conclusion

Uganda’s investment environment is well regulated and highly liberalized opening investment opportunities to both domestic and foreign investment, opening all sectors to investment apart from those that may compromise the country’s national security. There is a clear and speedy procedure for registration of investment and acquisition of an investment certificate/ license and other required permits, clearances and approvals. There are also incentives for investment and further incentives for investments in priority areas. Business investments are protected from expropriation which guarantees security of investment. Uganda is also a signatory to major international investment and business protocols and has market access enabled by treaties and agreements. All the above coupled together create a conducive legal environment for doing business in Uganda.

This article is intended for general knowledge only. For your specific need, consult a lawyer for specific and particular advise. The authors shall not be liable for the loss whether direct or indirect that may result from reliance on this article.