Rent Must Now Be Charged In Uganda Shillings

Section 5 of the Income Tax Act (Cap. 340) (the "ITA") has been amended to, among others, include a requirement that all rental agreements be executed and effected in Uganda shillings.

Below, we summarise this new legal requirement.

What is the meaning of the new requirement?

All rental agreements executed after the law comes into force must express the rent in Uganda shillings and must be payable in Uganda shillings.

Is the law in force?

Yes, the law took effect on 1 July 2017.

To whom does it apply?

The law applies to all rental arrangements, whether residential, commercial or for industrial use. The current market practice is that for larger and higher-end real estate, rent is expressed in United States dollars ("USD").

This law is expected to affect developers who usually finance higher-end real estate in USD. The law will now force developers to run a currency risk, which may be a cause of concern to both developers and their lenders.

Does it affect existing leases or tenancy agreements?

The law is silent on its effect on existing leases and tenancies. In our view, all existing leases and tenancy agreements entered into prior to the amendment, where rent is denominated in USD, will continue until expiry of their term. The obligation created by the amendment is to "execute" and "effect" rental arrangements in Uganda shillings. It therefore follows that this should not affect existing leases and tenancies that were executed prior to the date the amendment came into force. The law will apply to leases and tenancies executed on and after 1 July 2017.

What is the consequence of non-compliance?

There are no stated sanctions for non-compliance. However, executing a lease or tenancy agreement contrary to the law will render such an agreement illegal, making it unenforceable in a court of law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.