Uganda - Interest

Article 11. Interest

1.   Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed in that other State.

2.   However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contacting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3.   Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if it is paid in respect of a loan of any kind

a)   granted or guaranteed by the government, a political subdivision or local authority, or an agency of the other Contracting State or the Central Bank of the other Contracting State;

b) 

(i)   granted by a bank,

(ii)  granted by a financial institution of a public character,
provided that in the case of this sub-paragraph the loan repayment period is 3 years or more.

4.   The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of paragraphs 2 and 3.

5.   The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

6.   The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

7.   Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment is situated.

8.   Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.

Protocol:

X. Ad Articles 10 and 11

Notwithstanding paragraph 6 of Article 10, it is understood that the term “dividends” also means income from debt-claims provided that the law of a Contracting State subjects this income from debt-claims to the same taxation treatment as income from shares according to a combination of the following criteria:

–    the redemption date of a loan;

–    the size of the remuneration or indebtedness of the remuneration is depending on the profit or the distributions of profits; and

–    the subordination of a loan.

XI. Ad articles 5 and 7, 10, 11 and 12

Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 5 and 7, 10, 11 or 12, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied. The refund shall be given within a six month period from the on which the application was submitted to the competent authority. The six month period may be extended if the Contracting States agree that the necessary documentation has not been presented to the competent authority of the first-mentioned State.

XIV. Ad Article 11

It is understood that when a person mentioned in subparagraph a) of paragraph 3 of Article 11 grants any loan through another person, the loan shall be deemed to be granted by the first-mentioned person. As a person meant in subparagraph a) of paragraph 3 of Article 11 shall also be considered the Netherlands Finance Company for Developing Countries NV (FMO) and the Netherlands Investment Bank for Developing Countries NV (NIO).