One of the most frequent questions from our Clients looking to live and invest in Uganda is “Are there any exchange controls in your Jurisdiction?” Our answer is usually “Uganda’s laws on foreign exchange dealings in and out of the country are liberal.”
Although persons in possession of large sums of money are required to declare it at points of entry and exit, they will be cleared if a sufficient explanation is provided.
Foreign exchange control is an important determining factor of whether to invest in Uganda. Investors require assurance that they will be at liberty to transfer money in and out of Uganda. Let us attempt to discuss some of the laws governing foreign exchange controls in Uganda.
The Foreign Exchange Act, 2004 provides for the law relating to foreign exchange in Uganda. It provides that except with the prior permission of the Bank of Uganda, no person shall engage in foreign exchange business. All payments in foreign currency, into or from Uganda, between residents and non residents, or between non residents, shall be made through a bank. Every transfer of foreign exchange to or from Uganda shall be through a person licensed to carry out the business of money transfers.
The Financial Institutions (Foreign Exchange Business) Rules, 2010 (Hereinafter referred to as “The Rules”) made under the Financial Institutions Act, 2004 also govern this area. According to the Rules, foreign exchange business is defined as a facility offered, business undertaken or transactions executed with any person involving a foreign currency inclusive of any account facility, credit extension, lending, issue of guarantee, counter-guarantee, purchase or sale by means of cash, cheque, draft, transfer or any other instrument denominated in a foreign currency.
The Rules limit the conduct of new foreign exchange business where a financial institution is undercapitalized. The foreign exchange open position is also limited in that it must lie (+/-) 25% of a financial institutions core capital as at the preceding quarter.
The Rules impose restrictions on foreign exchange deposits and placements with correspondent financial institutions such that a financial institution shall not establish a new correspondent relationship with any bank or another financial institution abroad without prior approval of the Central Bank.
The Bank of Uganda has in place Anti money laundering regulations that apply to all financial institutions. These require financial institutions to report any unusual purchases of foreign exchange and complex unusual large transactions. A financial institution is also required to report, on a monthly basis, any transaction amounting to US$ 10,000 and above or the equivalent in any other currency involving cash or “near cash” such as travellers’ cheques, to the national law enforcement agencies, and serve a copy to the Central Bank by using the Large Cash Transactions Report.
An important regulation that has not always been enforced is set out under The Income Tax Act, Cap 340. Section 134(d) requires every tax payer transferring funds in the excess of 2500 currency points (Aprox. Uganda Shillings 50 million approximately USD 13,500 United States Dollars Thirteen Thousand Five Hundred) from Uganda to a place outside Uganda to obtain a tax clearance certificate from the commissioner.
Interestingly last week on 25th October 2019, Uganda Revenue Authority issued a Compliance Advisory Circular Ref: URA/DT/COM/36 wherein they required all banks and persons to note the immediate implementation of this provision of law. This ignited debate and discussion in the business community as no consultation had been carried out prior to the immediate implementation of the provision.
In a sudden turn of events, three working days later, the Uganda Revenue Authority has rescinded its decision and the Commissioner General, Doris Akol has issued communication suspending its earlier directive. “This is to clarify that before implementation, in order to minimize inconvenience to clients, URA will engage the industry to develop a convenient mode of operation including thresholds applicable and the necessary automation.”
We welcome this decision as it is important to avoid sudden changes in the regulatory system of Uganda, done without consultation and sensitization. These greatly affect the economy and are bound to depict Uganda as an unstable and risky investment choice.