LABOUR RECRUITMENT SERVICES NOT LIABLE TO PAY VALUE ADDED TAX

LABOUR RECRUITMENT SERVICES NOT LIABLE TO PAY VALUE ADDED TAX

Labour recruitment refers to the process of finding, screening, and hiring employees, often done through recruiter agencies (labour hire companies) or by a company's own recruitment team.

In Uganda to date there are over 200 licensed recruitment agencies that are authorized to recruit migrant workers for employment abroad.[1] This number reflects agencies that have met the stringent requirements set by the Ministry of Gender, Labour and Social Development under the Employment (Recruitment of Ugandan Migrant Workers) Regulations, 2021.

 As of mid-2022, over 300,000 Ugandans had been cumulatively deployed abroad through licensed recruitment agencies since the start of Uganda’s labour externalization program in 2005. This figure reflects the total number of jobs mainly unskilled and semi-skilled that Ugandans have taken on through these agencies over that period. The industry is regulated by various laws such as:

  1. The Employment Act No.6, 2006
  2. Statutory Instrument No. 62 of 2005, the Employment (Recruitment of Ugandan Migrant Workers Abroad) Regulations.
  3. The Prevention of Trafficking in Person Act No. 6, 2009
  4. The Uganda Citizenship and Immigration Control Act and
  5. The National Security Act.

As a licensing requirement, a company must be incorporated in Uganda with Ugandan shareholders/directors.

The Uganda Revenue Authority had recently reclassified the supply of labour recruitment services by labour recruitment Companies to foreign based clients, from zero rated exports to standard rated supplies[2] and issued various additional assessments to the companies in the industry arguing that the place for the supplies was Uganda.

Such recategorization has a huge impact on the industry in general ranging from increased cost of service, compliance and administrative burden to the companies in the industry which may lead to informal recruitment and trafficking. Within this backdrop a complaint was lodged with the Uganda

Under Premier Recruitment Limited Versus Uganda Revenue Authority Tax Application no.73 of 2023.

In the matter of Premier Recruitment Limited Versus Uganda Revenue Authority Tax Application no.73 of 2023 delivered on the 28th of March 2025, URA argued that the supply of labour recruitment services amounted to a local supply since the place of supply was Uganda and that it was therefore a standard rated supply and liable to payment of Value Added Tax.

 While rejecting the argument by URA, the Tribunal held that the place of supply of the services in question was immaterial, as such determination would only serve to make the supply in question a taxable supply chargeable at a rate of either 18% or 0%.

The Tribunal held that real question for determination was whether the services in question were exported from Uganda as part of the supply.

 It was therefore held that labour recruitment services are consumed abroad and as such are zero rated under Paragraph 1(a) and 2(b) of the Fourth Schedule to the VAT Act, and not liable to payment of Value Added Tax.

Similarly, In the case of Allied Beverages Company Limited versus the Commissioner of the Uganda Revenue Authority (URA), the High Court ruled in favor of Allied Beverages, overturning the Tax Appeals Tribunal's decision, determining that the place of consumption, rather than the place of service performance, is the determining factor for whether a service qualifies as an export and is therefore subject to zero-rated VAT. 

Summary of the Tribunal’s findings;

  • Recruitment services to foreign employers are exported services, zero-rated under VAT Act.
  • VAT should not apply as the benefit is consumed outside Uganda.
  • Charging VAT contradicts export promotion policies and increases cost burden on migrant workers.
  • Implications for Policy and Practice:
  • Supports exemption or zero-rating of recruitment services under VAT law.
  • Reinforces labour externalization as an export service, aligning with international tax principles.
  • Provides legal precedent for other agencies facing similar VAT assessments.
  • URA may need to revise its VAT interpretation for the sector.

Recommendations for Stakeholders:

  1. Recruitment Agencies: Advocate for the recognition of recruitment services as zero-rated exports to avoid VAT imposition.
  2. Uganda Revenue Authority: Revise VAT guidelines to align with the Tribunal's ruling and support export promotion policies.
  3. Policy Makers: Use the Tribunal's findings to inform future tax policy decisions and support the labour externalization sector.

 

[1]  https://ugandafact.com/list-of-licensed-recruitment-companies-in-uganda/#google_vignette

[2] Premier Recruitment Limited Versus Uganda Revenue Authority Tax Application no.73 of 2023