Taxation of Contractors

A non-resident contractor who derives service fee for the provision of services to a
prescribed licensee is liable to pay non-resident contractor tax at the rate of 10% of
the gross amount of the service fee. A licensee paying a service fee to a non-resident
contractor that is subject to nonresident contractor tax shall withhold 10% of the
gross amount at the time the licensee (withholding agent) credits the service fee to
the account of the non-resident contractor (payee) or the time the fee is actually
paid, whichever is earlier, and remit the amount so withheld to the Commissioner
within 15 days of the following month.  The tax withheld is a final tax on the service
fee, and the fee shall be excluded from the gross income of the non-resident
contractor.

When a non-resident contractor providing services to a prescribed licensee for a

service fee paid to the contractor by a non-resident associate of the licensee, which
service fee is recharged by the associate to the licensee, the service fee is subject to
non-resident contractor tax/withholding tax at 10%. The associate is treated as if he
is a non-resident contractor providing services to the licensee. And where a non-
resident contractor provides services for the benefit of a licensee and the service fee
is paid to the non-resident contractor by a non-resident associate of licensee, tax will
apply to any recharge of the service fee by the associate to the licensee as if the
associate provided the services to the licensee.

Withholding Tax

The tax payable on participation dividend derived by a non-resident person is only

treated as income derived from sources in Uganda to the extent to which the
participation dividend is paid out of profits sourced in Uganda. The withholding tax is
15%

 A licensee is treated as a designated withholding agent in respect of payments [in

excess of UgX 1 million] made to a resident contractor for a supply of goods or
materials of any kind or any services. The applicable tax rate is 6%. The royalty
amount paid in respect of the use, or the right to use, any tangible movable Uganda
by the licensee to any contractor in Uganda is subject to WHT at rate of 6%.

Tax Accounting Principles

 A licensee shall account on an accrual basis for all transactions at arms-length prices.
The licensee is required to  disclose all non-arms-length transactions in a return for a
specified period if required to do so by the Commissioner.

A prescribed licensee shall, for taxation purposes:

a)     maintain accounts for a contract area in both UgX and USD, and in the case of
any conflict, the accounts maintained in USD shall prevail.

b)     use the exchange rates prescribed for conversion of currencies and GoU or a
prescribed licensee shall not experience an exchange gain or loss at the expense of
and/or to the benefit of the other; and any gain or loss resulting from the exchange
of currency will be credited or charged to the accounts.

c)     use the exchange rates prescribed for conversion of currencies and the amounts
received, costs and expenditures incurred in UgX, USD or any other currency shall be
converted into UgX or USD on the basis of the average of the buying and selling
exchange rates between the currencies in question as published by BoU, prevailing
on the last business day of the calendar month preceding the calendar month in
which the amounts are received, costs and expenditures are paid.

d)     in the event of a one time or accumulative increase or decrease of 10% or more
in the exchange rates between the UgX, USD or the currency in question during any
given calendar month, use:

§ for the period from the first of the calendar month to the day when the increase or
decrease is first reached, the average of the official buying and selling exchange rates
between USD, UgX or any other currency as issued on the last day of the previous
calendar month,

§ for the period from the day on which the increase or decrease is first reached to the
end of the calendar month, the average of the official buying and selling exchange
rates between the USD, UgX or any other currency as issued on the last day on which
the increase or decrease is reached.

e)     maintain a record of the exchange rates used in converting UgX, USD or any
other currency.

Allocation of Costs and Expenses

Any petroleum exploration or development expenditure or petroleum expenditure

associated with a unit development involving a discovery area which extends into a
neighboring country or license or both shall be allocated on the basis of the
petroleum reserves attributable to that portion of the discovery area located in
Uganda or license or both.

Valuation and Measurement of Petroleum

The petroleum derived from a contract area shall be valued and measured in
accordance with the regulations prescribed by the Minister and passed by
Parliament.