On Friday July 21, 2023, the Uganda Registration Services Bureau (URSB) issued a notice indicating that over 800 companies had been struck off the register of companies in Uganda.
This followed an earlier notice published on March 20, 2023, requiring all companies to file their annual returns. These returns are basically a summary of the company profile indicating the company address, share capital, list of past and present members, indebtedness and particulars of the directors and company secretary as at the time of filing.
Companies that had not filed these annual returns for over a period of five years were required to file a statement of solvency indicating that the company had no grounds that could make it unable to pay or discharge its debts and liabilities.
Such companies were also required to show cause as to why they should not be struck off the register. In other words, they were required to show that, on top of merely existing, they are carrying on business and that their liabilities do not outweigh their assets.
A list of 875 companies that were struck off the register for failure to comply with the above requirements set by the bureau was also released. Surprisingly, companies that had been incorporated in as far back as 1966 were also affected by the notice.
Lately, URSB has been doing a lot of house-cleaning. It has set up an efficient digitalized system that ensures an easy and timely flow of services that all other entities ought to pick a leaf from.
In fact, one need not to hang around their offices anymore for one to utilize services like business name registration, intellectual property registration, or registering a company.
The house-cleaning was aimed at nsuring that companies registered in Uganda are easily tracked to avoid not only tax evasion but also prevent money laundering that has been endemic in Uganda to the extent that Uganda was ranked among the countries with the most anti-money laundering deficiencies.
It is not uncommon for Ugandans to incorporate sham companies only aimed at carrying out transactions that lead to tax avoidance or money laundering. Such companies only deal in one-off transactions and neither file annual returns at URSB nor tax returns at URA.
The common thread with these companies is that they mostly have no known physical address and only carry out transaction-based operations, making it hard to trace their directors or shareholder in the event that tax liabilities become due.
This is why, in January, 2023, URSB introduced a requirement for the provision of beneficial ownership information. This was a call upon all companies and partnerships to keep and submit a register of their beneficial owners by disclosing the personal information of the owners and the nature of ownership that they have in a company.
The recent notice striking non-compliant companies off the register for failure to file returns is one example of the house-cleaning that has been adopted by URSB. In as much as not all the companies that have been struck off the register were engaged in money laundering or tax evasion, they suffer the same tax implications.
In the first place, a company that is no longer on the register is not allowed to carry on business or partake in legal agreements. The liabilities of that company, including tax liabilities, immediately become due and payable.
These tax liabilities become payable off the capital contributions of the shareholders of the company where the company does not have assets that can be attached to recover revenue. In case they are not sufficient to cover the tax liabilities, the remainder can be recovered from the directors of that company.
Tax laws mandate the URA commissioner general or his representative to collect taxes that have not been paid as at the due date of payment. Companies among the 875 that have not been able to pay their taxes will most likely be issued with assessments and demand notices requiring them to pay their outstanding tax liabilities.
This, however, is distinguishable from scenarios where a company has become insolvent. In such scenarios, a legal moratorium is created to prevent creditors (including the taxman) from enforcing debt recovery measures against the company.
Any steps taken by a creditor to recover the money owed without a court order can be nullified. In case of insolvency, a company is liquidated and the proceeds therefrom are used to pay off the creditors in the priority prescribe under the law.
The scenario here is different since the companies that have been struck off the register are not undergoing insolvency. Their tax liabilities, therefore, become immediately payable.
To avoid all this hullabaloo, directors to these companies are advised to follow the requirements set by URSB and have their companies added back to the register if they are to avoid the consequences of not being able to legally operate and the inevitable demand notices from URA.
The writer is an advocate of the High court and a tax expert.
Source: The Observer
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