Export Processing Zones (EPZ) and Special Economic Zones (SEZ)

Written on 13 June 2022. Posted in Investment Guide

Each Partner State has gazetted Export Processing Zones (EPZ) and Special Economic Zones (SEZ).

EPZ and SEZ across the Partner States focus on contributing to building strong export-led economic development through industrialization. EPZ and SEZ provide a number of specific incentives for investors operating within them, which include fiscal and non-fiscal incentives, including corporate tax holidays, duty and VAT exemptions.

Burundi Special Economic Zones

The Burundi SEZ together with its Managing Authority were established in Burundi by a Presidential Decree Law to promote exports, provide an enabling environment and attract local and foreign direct investments. The Burundi SEZ offers a number of attractive fiscal and non-fiscal incentives including reduction or temporary tax exemption.

Kenya Export Processing Zones

The Kenya EPZ were established in Kenya with an aim of attracting and facilitating export-oriented investments. Kenya’s EPZ provide an attractive and enabling environment as well as a range of fiscal and procedural incentives for such investments. The EPZ is managed by the Export Processing Zones Authority (EPZA), which was established in 1990, by the EPZ Act CAP 517, Laws of Kenya. The Authority’s mandate is to promote and facilitate export-oriented investments and to develop an enabling environment for such investments. The EPZ Authority is a State Corporation, under the Ministry of Trade, Industry and Cooperatives. EPZA under the EPZ program offers a range of attractive fiscal, physical and procedural incentives to ensure low cost operations, fast set up and smooth operations for export-oriented business.

Rwanda Special Economic Zones

Rwanda’s SEZ program is designed to address some of the domestic private sector constraints such as availability of industrial and commercial land, availability and the cost of energy, limited transport linkages, market access and reduced bureaucracy, and availability of skills. Designated, serviced land is provided for small and large scale industrial development, as well as reliable, quality infrastructure, competitive fiscal and non-fiscal regulations, and streamlined administrative procedures.

South Sudan Export Processing Zones

South Sudan Investment Authority is responsible for the setting up of export processing zones and special economic zones and this process is still in its infancy.

 
Uganda Free Zones

The overall objective for adoption of Free Zones in Uganda is to create an enabling environment aimed at enhancing economic growth and development of export-oriented manufacturing in all sectors of the economy, in order to diversify the country’s economic base, attract foreign direct investment (FDI), generate employment, increase foreign exchange earnings, enhance technology transfer, skill acquisition/upgrading as well as create backward linkages. The Uganda Free Zones Authority is a corporate body under the supervision of the Ministry of Finance, Planning and Economic Development. It was established in accordance with the Free Zones Act, 2014 and started operations on 1^st September 2014. The Agency is responsible for the establishment, development, management, marketing, maintenance, supervision and control of free zones and to provide for other related matters.

Tanzania Special Economic Zones

The Export Processing Zones Authority (EPZA) in Tanzania is currently responsible for both Export Processing Zones (EPZ) and Special Economic Zones (SEZ). EPZA operates under the Ministry of Industry, Trade and Investment. EPZA is responsible for steering and implementing government policy on promotion of Special Economic Zones (SEZ) in Tanzania. Other functions of EPZA include the development of EPZ and SEZ infrastructure, provision of business services to EPZ and SEZ investors and issuing of EPZ and SEZ licenses. Once an investor obtains the EPZ or SEZ licenses, he or she does not require any other license except for highly regulated industries like food and drugs. Free Economic Zones (FEZ) in Zanzibar have been purposely established to attract foreign direct investment (FDI), specifically targeting labour intensive projects and increasing exports. Companies who set up their business in the FEZ designated areas enjoy simplified customs and other administrative procedures. Zanzibar currently has five free economic zones.

Public Private Partnerships

Written on 13 June 2022. Posted in Investment Guide

Public Private Partnerships (PPP) are an alternative method for procuring and delivering both infrastructure assets and services.

Burundi, Kenya, Rwanda, Tanzania and Uganda have enacted PPP laws and have also put in place PPP regulations/ guidelines.

Private Sector

Written on 13 June 2022. Posted in Investment Guide

The Treaty for the Establishment of the East African Community emphasizes a people centered, market driven and private sector led integration process for accelerating regional growth, creating wealth and reducing poverty.

The role of the private sector is therefore anchored at all levels as a vehicle for the development of the economies of the EAC Partner States. The EAC Treaty places private sector development high on its agenda and aims at fostering regional development that is private sector driven, internationally competitive and people-centered in utilizing the region’s resources.

The private sector in EAC considers political stability, strategic location, the climate and the abundant natural resources as the most attractive features of EAC as an investment destination.

The private sector urges the EAC and its Partner States to continue creating a favourable business environment through addressing infrastructure issues, simplifying business processes, addressing corruption and ensuring stable human capital development.

The private sector calls for tax regime harmonisation within the EAC. They also call on the Partner States to fully implement the four freedoms i.e. free movement of goods, free movement of labor, free movement of services, and free movement of capital.

Taxation

Written on 13 June 2022. Posted in Investment Guide

EAC Partner States have well-established tax regime and national revenue authorities that are responsible for assessment, collection and accounting for all revenues that are due to the government in accordance with the national laws. Taxes applicable to business entities include Corporate Tax, Withholding Tax (WHT), Excise Tax, Value Added Tax (VAT) and capital deductions.

National revenue authorities in the EAC Partner States

Financial Sector

Written on 10 June 2022. Posted in Investment Guide

Each EAC Partner State currently has its own financial sector, consisting of a Central Bank, commercial banks, non-bank financial institutions, mortgage companies, insurance companies, development finance institutions, microfinance institutions, Savings and Credit Cooperative Organizations (SACCOs), social security funds, building societies, and foreign exchange bureaus among others.

The central banks in each of the countries regulate and supervise the financial sector.

Several commercial banks are operating as regional commercial banks and have branches across EAC Partner States.

Sources of investment finance other than domestic banks include the East African Development Bank (EADB), the Trade and Development Bank (TDB), the African Development Bank (AfDB), the European Investment Bank (EIB), World Bank (WB), Exim Bank of China, among other international banking institutions and individual foreign national development banks.

Each of the EAC Partner States with exception of South Sudan has an active Capital Markets Authority (CMA), that regulates and supervises the capital markets in that particular Partner State. There are calls to put in place the EAC Capital Markets Authority as part of the efforts to integrate the EAC Capital Markets.

Human Resources

Written on 10 June 2022. Posted in Investment Guide

Each EAC Partner State has well-developed public and private education institutions at primary, secondary and tertiary levels. All the EAC Partner States are taking measures to increase support to the sector. Specialised Regional Centres of Excellence are being established across the EAC.

Workers and their employers must contribute to provident funds managed by the Governments on behalf of the workers in all the EAC Partner States. Each country has its own labour laws and regulations, which stipulate the terms of employment such as compensation, maximum working hours, vacation, leave, the employee complaint process, night and holiday work, and medical care. Wages are paid in the manner specified in the written contract of employment, which could be on a daily, weekly or monthly basis.

The EAC region has sufficient human capital to support new and existing businesses in the EAC with high quality, innovative and skilled human resources at all levels.

Within the EAC, international Universities of high repute have set up campuses. Also, a good number of Universities in EAC are ranked among the top 20 and top 1000 in Africa and the world respectively.

The EAC has Technical and Vocational Education and Training (TVET) institutions that are producing graduates with vocational skills and competencies at certificate and diploma levels.

Furthermore, the EAC is a Common Higher Education Area whose higher education is internationally competitive and attractive, ensures easy mobility and employability of graduates.

The Inter-University Council for East Africa (IUCEA), an institution of the EAC, coordinates the harmonisation of higher education and training systems in East Africa, facilitates their strategic development, and promotes internationally comparable standards and systems to ensure high quality human capital development necessary for developing and implementing investments. The IUCEA membership currently stands at 133 public and private Universities and University Colleges distributed within the six (6) East African Countries.

Infrastructure and Utilities

Written on 10 June 2022. Posted in Investment Guide

Power supply and energy

Power generation in the region is largely hydro- based. In 2019, 14.8 US cents was the average cost for one kilowatt hour (kWh) of electricity for East African domestic and industrial consumers. Hydro-power as an energy source is excelling in the region but suffers from a lack of distribution infrastructure. Kenya has managed to lower energy costs to consumers due to long-term investments in developing its geothermal energy production. This stable source of renewable energy gives Kenyan consumers more consistent access to electricity. The EAC countries have high solar energy potential. A significant debate involves land use for solar versus use of land for agricultural or mining purposes. Biomass energy is another option that is explored.

Water and sanitation

One basic goal of the EAC Governments is to ensure access to safe drinking water within a reasonable distance for their citizens. Public water supply is available to the majority of the population in urban areas throughout the EAC region. However, domestic and industrial waste management has remained a serious environmental challenge in most urban areas in the EAC Partner States. 

Telecommunications

The telecommunications sector is liberalised in all the Partner States. The communications infrastructure is modernised to meet business needs in the region. There is sufficient coverage of mobile network across the EAC. Rwanda, Kenya, South Sudan and Uganda are in a One-Area-Network that has enabled easy communication across the EAC Partner States where the roaming costs have been harmonised and calls across these Partner States are treated as local calls. Tanzania and Burundi are in the process of joining the One-Area-Network. The telecommunications sector in each Partner State is regulated by a government agency established by an Act of Parliament or a Presidential decree. However, South Sudan currently has no telecommunications regulator.

Telecommunication regulators in the EAC Partner states

The Road network

There are two (2) transit corridors that facilitate import and export activities in the EAC and neighbouring countries:

• The Northern Corridor (1,700 km long) commencing from the port of Mombasa and serves Kenya, Uganda, Rwanda, Burundi and Eastern DRC.
• The Central Corridor (1,300 km long) begins at the port of Dar-es-Salaam and serves Tanzania, Zambia, Rwanda, Burundi, Uganda and Eastern DRC.

There are also five (5) major transport corridors in the EAC:

• Mombasa - Malaba - Kigali - Bujumbura
• Dar es Salaam - Rusumo with branches to Kigali, Bujumbura and Masaka
• Biharamulo - Sirari - Lodwar - Lokichogio
• Nyakanazi - Kasulu - Tunduma with a branch to Bujumbura
• Tunduma - Dodoma - Namanga - Isiolo - Moyale

These main transport corridors are in good condition, and with the Road Fund boards and Road Agencies established in the Partner States, these transport corridors remain a priority for maintenance. The majority of feeder roads in each Partner State are also well maintained to support business at both national and regional levels.

Air transport

EAC has ten (10) international airports. There are other airports and airstrips spread across the EAC Partner States. With the exception of Burundi and South Sudan, the rest of the partner states have national airlines.

International Airports and National Carriers within the EAC

Several airlines fly into and out of these international airports within the EAC. It is very easy to travel by air within EAC Partner States and beyond.

Railways

The railway system is more developed in Kenya and Tanzania with the recent construction of Standard Gauge Railway (SGR) in both countries in a phased manner. Some SGR routes are still under construction and others are planned for construction. The leaders of Kenya, Rwanda and Uganda signed a tripartite agreement for the development and operation of the SGR between Mombasa-Kampala-Kigali, with branch lines to Kisumu (Kenya) and Pakwach/Gulu-Nimule (Uganda).

Convinced of the benefits of the high-speed train, South Sudan also acceded to the agreement in May 2014 to extend the line to Juba. Despite the delays in execution of the project due to funding challenges, the railway project is set to increase the region’s competitiveness and lower the cost of doing business.

Water ways and ports

Despite the existence of large water masses, especially the freshwater lakes, in the region, waterways remain underutilized. The key water way services are on Lake Victoria, Lake Tanganyika, and Lake Nyasa.  The services include cargo freight and passenger transport services on Lake Victoria (linking Tanzania, Kenya and Uganda), Lake Tanganyika (linking Tanzania, Burundi, the Democratic Republic of the Congo and Zambia), and Lake Nyasa (linking Tanzania, Malawi and Mozambique). 

Seaports in the region consist of the ports of Mombasa in Kenya, and Dar es Salaam, Mtwara, and Tanga in Tanzania whereas Burundi, Rwanda, South Sudan and Uganda are landlocked. The ports have been modernised including dredging to handle world-class freighters. This has led to increased cargo handling. The two major ports of Dar es Salaam and Mombasa serve not only the EAC but also other landlocked countries, including Zambia and the Democratic Republic of the Congo.

EAC Investment

Written on 10 June 2022. Posted in Investment Guide

EAC Partner States are committed to improving their investment environment with targeted investments into infrastructure, industrial development, and oil production and refining, as well as investment in renewable energy, to reduce the huge import bill and dependence on fossil fuels.

EAC Partner States continue to promote investment opportunities to attract Foreign Direct Investments (FDIs) into the various priority sectors. FDIs inflows to the EAC have previously been concentrated in the manufacturing, construction, and services sectors. China and India continue to be the major sources of FDI to EAC.

_{Source: UNCTAD (2020) World Investment Report. Figures in red are estimates.}

Kenya, Rwanda, Tanzania and Uganda have been experiencing a steady increase in FDI since 2017. Besides FDIs, the EAC is keen to promote intra-EAC investments, by implementing policies that enhance domestic resource mobilization, including improved tax administration, financial sector development, financial innovation and curbing capital flight by stopping illicit financial flows from EAC.

EAC Trade

Written on 10 June 2022. Posted in Investment Guide

The economies of the EAC depend on export of agricultural commodities, manufactured products, and services such as tourism, ICT and financial services. To a large extent trade between the Partner States as well as with the rest of the world is mainly on primary commodities though there is an increase in the trade of finished goods.

The composition of EAC trade is dominated by agricultural commodities, namely coffee, tobacco, cotton, rice, maize, wheat and tea.

Manufactured goods such as cement, petroleum, textiles, sugar, confectionery, beer, salt fats and oils, steel and steel products, paper, plastics and pharmaceuticals are also traded across the region.

EAC intra-regional imports grew by 13.9% to USD 2.8 billion from USD 2.5 billion in 2017. Intra-regional exports grew by 5.6% to USD 3.2 billion in 2018 from USD 2.9% in 2017.

The growth in intra-regional trade was attributed to increased production of agricultural commodities leading to higher exports that are traded among the Partner States especially maize, rice and dairy products; elimination of Non-Tariff Barriers; as well as increased intra-EAC trade in intermediate products like cold rolled iron and clinker (EAC, 2018).

Uganda Standard Incentives for Investors

Written on 30 May 2022. Posted in Investment Guide

The tax incentives / exemptions available to investors in Uganda are comprehensively provided in ‘’A Guide on Tax Incentives / Exemptions available to the Ugandan Investors, 2019’’ published by Uganda Revenue Authority.

1. Investment Incentives
   

   A foreign investor in Uganda is required to obtain an investment licence from the UIA. A foreign investor qualifies for incentives under the ICA where the investor makes a capital investment or an equivalent in capital goods worth at least US$ 500,000 by way of capital invested. The Second Schedule to the ICA contains the priority investment areas for which additional benefits may be granted.The benefits that can be negotiated by or granted to the holder of an investment certificate are as follows:
   1. concessional rates of import duty for an investor who is importing any plant, machinery, equipment, vehicles or construction materials for an investment project;
   2. exemption from payment of import duty on one motor vehicle for personal use, personal and household effects which the person owned and used outside the East African Partner State for at least twelve months. Such person must show that he is changing residence from a place outside the East African Partner State to a place within the East African Partner State;
   3. incentives available generally for start-up businesses under custom laws, the Income Tax Act (Cap 340) (ITA) and the Value-Added Tax Act (Cap 349); and
   4. drawback of duties payable on imported inputs used in producing goods for export as provided in the laws imposing such duties and taxes.

2. Income Tax
   

   Resident companies and businesses are taxed on worldwide income. Non-residents are taxed only on Uganda- source income. A company or similar corporate entity is resident in Uganda if it is incorporated or formed under Ugandan law; management and control of its affairs are exercised in Uganda; or the majority of its operations are carried out in Uganda during the year of income. An individual is a tax resident if domiciled in Uganda, spends at least 183 days in any 12-month period, or is present for an average of at least 122 days during 3 consecutive tax years, or if that individual is an employee or official of the Government of Uganda posted abroad during that year of income.Uganda’s corporate tax rate is 30% for resident companies and branches of foreign companies. The rate for mining companies ranges. It is either 25% or 45% depending on the chargeable income.

3. Withholding Tax
   

   Withholding tax of 15% is imposed on every non-resident person who derives any dividends, rent, natural resource payment, interest, royalties and management fees from sources in Uganda. Withholding tax of 15% is imposed on a resident person deriving dividends and interest in Uganda. Withholding tax on interest payable to resident persons does not apply to:
   1. interest paid by a natural person;
   2. interest paid by a company to an associated company;
   3. interest paid which is exempt from tax in the hands of the recipient; and
   4. interest other than interest from governmental securities paid to a financial institution.

4. Capital Gains Tax
   

   Residents and non-residents in respect of a Ugandan branch are liable to income tax on gains arising from disposal of their non-depreciable asset (including a sale of shares in a private company). Those gains are included in gross income and treated as normal business income subject to income tax at the rate of 30%.

5. Other Tax
   

   Value-added Tax (VAT) is chargeable on taxable supplies of goods and services in Uganda and the import of certain goods. The standard rate of VAT is 18%. However, a zero rate applies to supplies including agricultural produce in an unprocessed state, financial services and insurance services limited to health insurance services, micro-insurance services, re-insurance services and life insurance services.

6. Transfer Pricing and Thin Capitalisation
   

   The Income Tax (Transfer Pricing) Regulations, 2011, applies to a controlled transaction if a person who is a party to the transaction is located in and is subject to tax in Uganda and the other person who is part to the transaction is located in or outside Uganda. “Controlled Transaction” means a transaction between associates. The Regulations require that transactions between associated persons be conducted in accordance with the arm’s length principle. The Income Tax Act, (Cap 340) contains provisions on thin capitalisation of foreign controlled resident companies. Thin capitalization arises where a company, incorporated in Uganda is controlled by a non- resident person i.e. the foreign controller and has a foreign debt to foreign equity ratio in excess of 1:1 at any time during a year of income. In this case, a deduction is disallowed for the interest paid by the company during that year on that part of the debt which exceeds the 1:1 ratio (financial institutions are exempt from this legislation).

7. Stamp Duty on a Transfer
   

   Stamp duty on any transfer is charged at a rate of 1% of the total value of the transfer. It is charged at nominal rates on a variety of financial instruments and transactions, for example, guarantees, loan agreements, deeds of assignment and novation deeds.

8. Double Tax Treaty with Mauritius
   

   Uganda has a double tax agreement (DTA) with Mauritius. Under the DTA, dividends, interest and royalties paid to a person resident in Uganda by a Mauritian company are taxed at a rate of 10%.

9. Fiscal Incentives under Uganda Free Zones Scheme
   

   Exemption from taxes and duties on all Export Processing Zone imported inputs that are for the exclusive use in the development and production output of the business enterprise (raw materials, plant and machinery, spare parts and intermediate goods).
   1. Exemption from all taxes, levies and rates on exports from the Free Zones.
   2. 10-year tax holiday for a Developer of Free Zone whose investment capital is at least US$ 50 million.
   3. 10-year tax holiday for an Operator in a Free Zone whose investment capital is at least US$ 10 million (foreigners) or US$ 2 Million (EAC).
   4. Exemption from tax on plant and machinery used in the Free Zones for 5 years and 1 day upon disposal.
   5. Nil Excise duty on construction materials for development of free zones by a developer US$ 50 million (Foreigners) and US$ 10 million (EAC). Operators -US$ 10 million (foreigners) and US$ 1 million (EAC).
   6. Stamp duty exemption on lease of land, increase of share capital, transfer of land: Developers US$ 50 million (Foreigners) and US$ 10 million (Ugandan). Operators -US$ 10 million (foreigners) and US$ 1 million (EAC).
   7. VAT Exception on feasibility studies, design construction services, construction materials and earth moving equipment and machinery for entire duration of the development. The investment must be at least US$ 50 million.
   8. Exemption from Tax on income from Agro-processing.
   9. Unrestricted remittance of Profit after tax

10. Non-Fiscal Incentives under Uganda Free Zones Scheme

    1. Dedicated Business facilitation and aftercare services.
    2. Economies of scale resulting from a centralized business structure with access to many clients;
    3. Enhanced Technology uptake;
    4. Centralized Customs inspection of buildings, premises, vehicles, vessels entering and leaving the Free Zone.