If you supply goods or services to a government body, a large company or any other business designated as a withholding agent, you have probably received a payment that was 6% short of your invoice. That is withholding tax, and it is not a cost you have lost. It is income tax paid in advance on your behalf. This guide explains the rule from both sides of the invoice, and a change from 1 July 2026 that rewards suppliers who issue EFRIS receipts.
What withholding tax is
URA defines withholding tax as income tax deducted by the person making a payment, the withholding agent, before the balance is paid to the recipient. The agent remits the deduction to URA on the recipient's behalf. It applies only where the tax law requires it for that type of payment, so most payments between ordinary businesses carry no withholding at all.
The 6% rule on goods and services
URA's withholding tax page states the core rule: government bodies and designated withholding agents deduct 6% where the total payment or contract is above UGX 1,000,000. In a published answer, the Commissioner General's office adds that designation rests with the Minister of Finance, who may consider the sector, volume of transactions and turnover when choosing agents, and that a designated agent must withhold 6% on all payments exceeding UGX 1 million for goods and services unless the supplier holds a withholding tax exemption.
A supplier who objects to the deduction cannot ask the agent to skip it. URA is explicit that an agent who fails to withhold is personally liable to remit the tax not withheld, and may then recover it from the supplier. Agents therefore have every reason to deduct.
Other 6% cases on URA's page include a resident paying a resident professional, manager or qualifying agent, and importers, who generally pay 6% on the customs value of imported goods unless exempt.
Where the money goes, and how to get it back
This is the part suppliers most often miss. URA states that the 6% withheld from a supplier is generally a tax credit: the amount is treated as a payment of tax by the supplier and is creditable against the supplier's tax liability for the year. The supplier should obtain the credit in their ledger and use it when filing the income tax return. The agent, by contrast, cannot claim the credit or redirect it to its own liabilities.
In practice that means you should record every short payment as a withholding tax receivable, not as a discount, and reconcile those entries to the credits showing on your URA ledger before you file your final return. For a business with thin margins, the credits can exceed the year's tax bill.
Agents: the 15th of the month
For the agent, the obligation has a deadline. URA states that the return and payment are due within 15 days after the end of the month in which the payment was made; tax deducted in July is filed and paid by 15 August. Withholding tax returns were also among those URA asked taxpayers to review for July and August 2026 following the late assent of the Income Tax (Amendment) Act, 2026.
The 2026 change: EFRIS receipts and withholding VAT
Separately from income tax withholding, designated agents also withhold VAT on certain payments. The Value Added Tax (Amendment) Act, 2026 changed this. EY's summary states that the Act excludes a designated person from VAT withholding where it pays for taxable supplies and is issued an e-invoice or e-receipt under the Tax Procedures Code. URA's own page puts it more simply: no withholding VAT is deducted where a valid EFRIS e-invoice or e-receipt is received, and the Commissioner General's office confirmed the effective date as 1 July 2026.
For a VAT-registered supplier, that is a direct cash-flow benefit from issuing fiscal receipts. The same Act, according to EY, also introduced a 6% withholding tax on gross payments to public entertainers and amended the definition of royalty to include software, which brings payments for imported software within withholding.
Exemption from withholding
Suppliers with a clean compliance record can apply to be exempt, so that agents pay them in full. URA's notice for the July to December 2026 period shows how demanding that is: applications were open from 7 April to 7 June 2026, only electronic applications were considered, and applicants were vetted on an up-to-date registration profile, complete and accurate returns for the last three years, no outstanding tax outside an approved plan or dispute, and full EFRIS compliance where applicable. URA opens a fresh window for each half-year; a supplier who wants the exemption should start tidying returns now.
What to do this quarter
- Suppliers: list every payment received short of invoice since 1 July, confirm each appears as a credit on your URA ledger, and chase any that do not.
- Agents: check that every July, August and September deduction was filed by the 15th of the following month.
- VAT-registered suppliers: make sure every designated customer receives an EFRIS e-invoice, so that no withholding VAT is deducted.
Sources
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