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By Mulengera Reporters
The Uganda Revenue Authority (URA) has clarified its position on the taxation of foreign-sourced interest income, particularly under the Uganda-India Double Taxation Agreement (DTA), amid growing concerns from taxpayers about fairness, double taxation, and compliance obligations.
Speaking through the weekly “Ask the Commissioner General” column published in New Vision on Thursday, May 28, 2026, URA Commissioner General John R. Musinguzi explained how Uganda interprets Article 11 of the Uganda-India DTA and the applicable domestic tax laws governing offshore interest income.
According to Musinguzi, Article 11 of the treaty allocates taxing rights between Uganda and India. Under the arrangement, interest earned in India by a Ugandan resident is taxable in Uganda as the country of residence, while India retains limited rights to tax the same income at a rate not exceeding 10 percent of the gross amount, provided the recipient is the beneficial owner.
“In practice, URA applies this alongside Section 17(2) of the Income Tax Act, meaning such foreign interest is declared and taxed in Uganda as part of the resident’s worldwide income,” Musinguzi noted, adding that taxpayers can claim foreign tax credits for taxes already paid in India.
The clarification comes as taxpayers continue raising concerns over the apparent disparity between taxation of domestic and foreign interest income. While domestic bank interest is generally subject to a final withholding tax of 15 percent, foreign interest income may attract marginal tax rates of up to 30 percent.
Musinguzi defended the distinction, explaining that the domestic withholding tax system was designed to simplify compliance and support domestic savings and investment. In contrast, foreign interest income lacks a withholding mechanism and is therefore treated as property income under Section 20 of the Income Tax Act.
“Foreign income is taxed through the standard assessment system,” he explained. “However, the foreign tax credit framework remains the key mechanism for ensuring fairness and reducing the overall tax burden on cross-border passive income.”
The Commissioner General further noted that any changes aimed at aligning the tax treatment of foreign interest income with domestic withholding tax rates would require legislative reforms by the Ministry of Finance rather than administrative action by URA.
On concerns regarding the treaty principle of non-discrimination under Article 24 of the DTA, Musinguzi maintained that the current approach remains compliant because the differing tax treatment is based on administrative mechanisms rather than nationality.
URA also reassured taxpayers that guidance on foreign passive income has consistently been provided through public notices, compliance campaigns, and the Voluntary Disclosure Programme launched in November 2023.
The programme encourages taxpayers to voluntarily declare offshore income and assets while benefiting from available relief mechanisms to avoid double taxation.
URA advised taxpayers with foreign accounts and investments to identify offshore assets, calculate undeclared income, amend previous returns where necessary, declare foreign tax credits, and submit disclosures through the authority’s tax investigations department.
Musinguzi emphasized that Uganda’s tax system seeks to balance fairness, neutrality, transparency, and revenue mobilisation while ensuring that taxpayers earning offshore income remain compliant with the law.
“This approach promotes transparency, reduces uncertainty, and reassures taxpayers that while worldwide income is taxable, relief mechanisms exist to ensure fairness and avoid double taxation,” he said. (For comments on this story, get back to us on 0705579994 [WhatsApp line], 0779411734 & 041 4674611 or email us at mulengeranews@gmail.com).
