Uganda's 15% Software Withholding Tax: What It Adds to Your Bill

What changed on 1 July 2026

From 1 July 2026, Uganda's Income Tax (Amendment) Act 2026 inserted the word "software" into the definition of "royalty" in section 2 of the Income Tax Act (Cap 338), according to EY's Global Tax Alert and the parliamentary bill's commencement clause. The practical effect: a payment you make to a non-resident vendor for the use of, or right to use, software is now unambiguously a royalty. That means it is subject to withholding tax under section 82(1) at 15% on the gross amount, as set out in Part V of Schedule 4 (AF Mpanga, June 2026).

From a contested 5% to a clear 15%

Before the amendment, URA in practice treated software licence payments as royalties, but the legal basis was contestable. Some taxpayers argued that software was a service, not a royalty, and could avoid withholding. The 2026 change removes that argument entirely. KPMG summarised the budget-based amendment as: "Broadening of definition of 'royalty' to include software, and increasing the tax rate from 5% to 15%" (KPMG, June 2026).

Who withholds and remits the tax

As the Ugandan business paying the software vendor, you are the withholding agent. You must deduct 15% from the gross payment and remit it to URA. If you fail to withhold, you can be exposed to the unremitted tax plus penalties and interest. This is an operational cash-flow issue, not just a tax-technical one: the amount leaves your account at payment time.

The real cost: gross-up and tax-on-tax

Check your contract before you sign. If the vendor grosses up, you bear the tax "on top," so a US$10,000 per year software licence becomes US$10,000 divided by 0.85, which is approximately US$11,765 — an extra US$1,765 on top of the sticker price because the withholding tax is itself subject to tax. If the vendor simply adds 15% on top, the additional amount is US$1,500. Negotiate explicitly which party bears the withholding.

Treaties and local resellers can change your outcome

Uganda has double-taxation treaties that may reduce the royalty withholding rate, so check treaty eligibility and any reduced rate before assuming 15% is final. The 15% withholding targets payments to non-residents specifically. Local resident vendors follow a different withholding treatment, and buying through a resident reseller or local provider can change the withholding picture. Separately, royalty payments are now excluded from Digital Service Tax and instead subject to this 15% withholding, which means a shift from the 5% DST to 15% WHT for some cross-border digital and software payments (URA Tax Amendments FY 2026/27 notice).

Don't confuse this with import levies

Two other costs often get bundled into procurement conversations. VAT on imported services, generally 18% under the reverse charge, may also apply to your software purchase — that is separate from the withholding tax. The 2.5% import levy (1% Import Declaration Fee plus 1.5% Infrastructure Levy) applies to physical goods entering for home use; it does not apply to software services. Keep these concepts separate so you don't overstate or understate your true cost. For more on the physical-goods levy, see Uganda's new 2.5% import levy.

How to buy smarter under the new rule

The change does not make foreign software unaffordable; it makes the all-in price more transparent if you model it correctly. This matters as Uganda pushes for more local digital capacity, because software procurement is becoming a strategic rather than purely technical decision. Read more about Uganda's AI sovereignty push to see how the procurement landscape is shifting.

1. Model the all-in cost including withholding, gross-up, and VAT before you sign.
2. Verify whether a double tax treaty lowers the 15%.
3. Weigh a resident reseller or local provider if it changes the withholding picture.
4. Negotiate gross-up terms explicitly in the contract.
5. Budget cash-flow because withholding tax is due at payment time.