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The Investment Code Act, 2019; An outline of the major changes to the Legal Regime

"Investment Code Act"

A new Investment Code Act (the “Act”) was passed by Parliament on 20^th February, 2019 to replace the Investment Code Act, Cap 92. The Act commenced on 29^th March, 2019 and applies to both current and future investors. All existing investment licences remain in force subject to necessary modification. Below is an outline on the major changes in the Law;

Definition of the term Investor: The term “Investor” has now been split into two categories i.e. foreign and domestic Investors. Domestic Investors include Ugandans. This is a major shift from the previous limitation of Investors to only include foreigners. It is equally a positive development as it enables Ugandan citizen with investments to enjoy the incentives that were formerly accorded to only foreigners.

Licensing conditions: The old provisions that allowed investor to negotiate the conditions of their licences with the Authority were repealed. This means that the conditions governing investment licenses will be determined by the Authority in its discretion. However, a dissatisfied investor is not prevented from engaging the Authority for purposes of determining/reviewing these licensing conditions.

Commencement date of business: Every Investor who seeks to obtain an Investment license must ensure that their affairs are in order and that they are ready to commence business on the date named in the licence. This is because the provision allowing Investors to apply for extention of time within which to commence investment operations has since been removed.

Data storage: In addition to other obligations, the Act requires Investors to keep all data relating to their operations for a period of seven years. In the absence of a specific legal provision stipulating the length of time for which data, whether personal or not may be kept, this provision offers guidance to data collectors in this regard.

Areas of Investment; Just like the past regime, the Act sets out priority areas of investment. The difference is that the Act makes it mandatory for an Investor to invest in at least one of these areas. The failure to do this would have the effect of disqualifying the Investor from obtaining incentives.

Under the new law, an Investor who meets all the qualifications of obtaining incentives (such as investing in at least one priority area) will get the incentives irrespective of their other additional areas of trade. This is a move away from the old regime which prohibited Investors from benefiting from incentives in the event that they invested in certain areas of trade such as whole-sale and retailer commerce, postal services and professional services.

The new law has done away with market access restrictions by permitting an investor to invest in any area of business of their choice. This is a major shift from the past position which prohibited foreigners from investing in certain areas of trade such as crop and animal production. Even though by this change Ugandan investors have lost the protection they previously enjoyed, this loss is compensated by the fact that they can now apply for investment licences as domestic investors.

Incentives regime: The new regime, unlike the previous one, does not specify the nature and type of incentives that an Investor is entitled to. An Investor who applies and qualifies for incentives will be given a certificate of incentives which shall stipulate the detailed particulars of the incentives given. This therefore suggests that the incentives to be given to each investor will be discretionary putting into account a number of aspects such as the governing law of that area of trade and any incentives permitted thereunder and the nature of business.

Compliance and Penalty provisions: The Act also comes with harsher and more stringent sanctions for all investors who fail to comply with its provisions. An investor who among others fails to give or gives false or misleading information is liable to a fine of not more than Uganda Shillings Five Million (Ug. Shs. 5,000,000) and/or imprisonment not exceeding five (5) years. The punishment previously was a fine of Uganda Shillings Three Million (Ug. Shs.3,000,000) and/or imprisonment not exceeding two (2) years.