Part I: Background

Following the discovery of commercially exploitable petroleum reserves in 2006, the

GoU proceeded to enact laws and regulations to facilitate the translation of the
exhaustible petroleum resource into durable and sustainable resource for the benefit
of Ugandans. Among the laws inserted of PART IXA into the Income Tax Act, 1997
containing comprehensive taxation rules specific to the petroleum operations in
2008. These rulesd introduced by the Income Tax (Am) Act 2, 2008 were to
retrospectively apply with effect from 1st July 1997 when the main Income Tax Act
was enacted.

It must be noted that any term that is not defined in the Income Tax Act has the
same meaning assigned to it in the Petroleum (Exploration, Development and
Production) Act, 2013. Noted also that in case of any inconsistency in the taxation of
a licensee between PART IXA, other parts of the Income Tax Act and any petroleum
agreement, the provisions of PART IXA shall prevail.

Herein we summarize the taxation rules applicable to the taxation of petroleum

sector. As it is the rule of thumb, the taxation laws are very dynamic and often
amended each year time to time to bring them in line with new social and economic
developments in the sector. Hence you are advised to consult your tax advisor or us
before applying on any part hereof otherwise the we shall be held liable for any
misrepresentations or liabilities arising from its use. Part II covers the definition of
terms, Part III the income tax provisions and part IV covers the VAT provisions.  

Part II: Definition of terms

Approved decommissioning plan means a decommissioning plan approved under

the Petroleum (Exploration, Development and Production) Act, 2013.

Business asset means an asset which is used or held ready for use in a business, and
includes any asset held for sale in a business and any asset of a partnership or
company;

Commencement of commercial production means the first day of the period of

thirty consecutive days during which production is not less than the level of regular
production delivered for sale as determined by GoU as part of the approval of, or
amendment to a development plan, averaged over not less than twenty-five days in
the period.

Commercial production means the production of crude oil or natural gas and

delivery of the crude oil or natural gas at the delivery point under a program of
regular production and sale.
Contract area means the area described and shown in a petroleum agreement on
the effective date of the agreement; and where any part of the area is relinquished
under the petroleum agreement, the whole or any part of such area which at any
particular time remains subject to the petroleum agreement.

Contractor means a person supplying services or goods other than as an employee

to a licensee in respect of petroleum operations undertaken by the licensee.

Cost oil means a licensee’s entitlement to production as cost recovery under a

petroleum agreement;

Decommissioning fund means a decommissioning fund established under an

approved decommissioning plan.

Delivery point means the point at which petroleum passes through the intake valve
of the pipeline, vessel, vehicle or craft at a terminal or refinery in Uganda.

Depreciable asset means any plant or machinery, or any implement, utensil or

similar article, which is wholly or partly used, or held ready for use, by a person in the
production of income included in gross income and which is likely to lose value
because of wear and tear, or obsolescence;

Farm-out agreement is an agreement where a licensee (transferor) has entered into

an agreement with a person (transferee) for the transfer of the whole or part of an
interest of the transferor in a petroleum agreement for a consideration of the
transferred interest, and includes the transferee undertaking some or all of the work
commitments of the transferor in respect of the part of the interest retained by the
transferor.

Gross income of a licensee includes cost oil, licensee's share of profit oil and any
credits earned by the licensee from petroleum operations;

Immovable property includes a petroleum, petroleum information right, any

intangible asset which is a business asset or any part of the business.

Licensee means a person with whom GoU has entered into a petroleum agreement.

Management charge means any payment made to any person, other than a

payment of employment income, as consideration for any managerial services,
however calculated.

Non-resident associate means an associate of the licensee that is a non-resident

person.

Non-resident contractor means a contractor that is not a resident person.