Among the tax changes that took effect on 1 July 2025, one was aimed squarely at people thinking of starting a business. The Income Tax (Amendment) Act, 2025 exempts the income of a business established by a Ugandan citizen after that date from income tax for three years, provided the business is small and the owner files returns. Fifteen months on, URA is actively promoting the measure as a reason to register. Here is what it offers, what it requires, and what it does not do.
The exemption
EY's summary of the 2025 Tax Amendment Acts, assented to on 30 June 2025 and in force from 1 July 2025, describes the measure: income derived from a business established by a citizen after 1 July 2025 is exempt for a period of three years, where three conditions are met. The three conditions are:
- The business is registered with an investment capital not exceeding five hundred million shillings.
- The citizen, or an associate of the citizen, has not previously benefited from the exemption.
- The citizen files a tax return, including the business information return referred to in section 147 of the Income Tax Act, in the format prescribed by the Commissioner General.
What URA says it is for
In its published answers to taxpayers, URA frames the exemption as a formalisation incentive, describing a three-year tax incentive for anyone who registers their business after 1 July 2025 and saying it is encouraging taxpayers to register and benefit. The same answer points to the Taxpayer Register Expansion Programme, through which URA works with URSB, KCCA, the Uganda Investment Authority and the Ministry of Local Government to offer a one-stop centre for registration. URA lists the exemption alongside instalment payment plans as its main relief for small and medium enterprises.
The conditions deserve a closer look
The headline is generous; the conditions are where most new owners will trip.
Capital, not turnover. The UGX 500 million limit is on registered investment capital, not on sales. A business with modest capital but strong sales still qualifies, provided it files.
One bite. Neither you nor an associate may have used the exemption before. Closing a company and opening a new one to restart the clock is exactly what the associate test is designed to catch.
Returns are the price. The exemption only exists for a business that files an income tax return and the section 147 business information return in URA's prescribed format. Exempt does not mean silent. EY also points to a new section 93C of the Tax Procedures Code requiring exempt taxpayers to continue satisfying the conditions, failing which tax is payable for the lapse period.
Established after 1 July 2025. A business that existed before that date, under any name, does not qualify.
What the exemption does not cover
It is an income tax exemption on the business's own income. It does not remove the obligation to deduct and remit PAYE on employees' salaries, to remit NSSF contributions, to register for VAT once turnover crosses the threshold, to issue EFRIS receipts if the sector requires them, or to hold a trading licence. URA's domestic taxes FAQs still show PAYE, VAT and withholding tax falling due 15 days after the start of each following month, exemption or not. A new business that treats the exemption as a three-year holiday from tax administration will be surprised.
Registering to qualify
The practical sequence is registration first, exemption second: a business name or company at URSB, a TIN at URA, and a trading licence from the local authority. EY's summary of the 2025 Tax Procedures Code changes notes that individuals are now identified by the national identification number issued by NIRA and non-individuals by a URSB registration number, with URSB keeping a central register, and that no licence or authorisation is to be issued without one of those numbers. The paperwork a new business already needs is the paperwork the exemption depends on.
What to do if you qualify
- Confirm your start date and registered capital against the three conditions.
- Register for a TIN if you have not, and note the date.
- Keep full books from the first day. The exemption is claimed in a return, and the return has to show the income it exempts.
- File the income tax return and the business information return on time for each of the three years.
- Keep every other monthly obligation running as normal.
Three years of income tax relief is a real head start for a small business. It is available only to the business that behaves, from day one, as though it were paying.
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