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In 2024, amendments to various tax laws including the Income Tax Act and the Stamp Duty Act among others were enacted. One of the purposes of the amendments was to introduce tax incentives for private equity and venture capital funds.
In this article , we highlighted that the tax incentives were welcome developments that would stimulate market development and attract much-needed capital for start-ups and SMEs. However, we did note that the Capital Markets regulatory framework was ambiguous, especially with respect to the regulation of private equity funds.
While the Capital Markets Authority Act (“Act”) provided for the requirement for venture capital funds to obtain approval from CMA prior to the commencement of operations, the same clause did not extend to private equity funds thereby giving rise to a lacuna. The result of this lacuna, as we highlighted, would be an exclusion of private equity funds from benefiting from the tax incentives because they would not meet the requirement of being regulated by CMA, which is a prerequisite to qualify for tax incentives.
It was therefore necessary to harmonize the regulatory framework to ensure maximum benefit of the tax incentives.
The CMA (Licensing and Approvals) Regulations 2025
The CMA (Licensing and Approvals) Regulations 2025 (the “Regulations) provide clarity with respect to the licensing framework for venture capital and private equity funds in Uganda. Regulation 30 requires a venture capital or private equity fund to obtain approval from the CMA prior to the commencement of business, thereby curing the lacuna contained in S.50 of the Act and bringing private equity funds under the regulation of the CMA.
- Corporate Structure
The Regulations have expanded the scope of the potential corporate structure of private equity funds to include a trust, partnership, or company. The regulations have therefore adopted a flexible approach with respect to an acceptable corporate structure for these funds, bearing in mind that ordinarily set up as partnerships. The clarity in the definition of the corporate structure of private equity funds also alleviates prior confusion in the market – to the effect that the capital markets framework required these funds to be companies.
It must be noted, however, that the corporate structure of venture capital funds is provided for in the Act – and is limited to companies only. A change in this definition would require an amendment of the Act.
- Licensing Requirements
The regulations provide for the licensing requirements applicable for both private equity and venture capital funds. An applicant must have as its principal purpose, the provision of risk capital to businesses in Uganda.
- Financial Requirements
The regulations also require that an applicant satisfy the requisite financial requirements. The financial requirements referenced are provided for in the CMA (Accounting and Financial Requirements) Regulations, 2022, which provide for the minimum paid-up capital of a venture capital fund to be UGX 1.5 billion. This indeed follows the fact that the Act requires venture capital funds to be sent up as companies. It is imperative to note that these regulations do not provide for financial requirements for private equity funds. It remains to be seen whether – in instances where a private equity fund is a company, the CMA will apply the requirement applicable to venture capital funds.
- Governance
The regulations also require that an applicant has a board of directors or other governing body with a minimum of five directors or members, a third of whom shall be independent directors. The implication of this requirement is that for venture capital funds, they must constitute a board given their corporate structure while for private equity funds not being companies – a governing body would suffice, provided it meets the numerical threshold expected. It may also be argued that the requirement for independent directors is restricted to those funds whose corporate structure is a company.
For funds set up as partnerships, the regulations provide room for them to constitute a governing body suitable for the unique circumstances of their operational structure. It will remain to be seen whether the CMA will require independent persons to join such governing bodies of a partnership.
- Exemptions
The regulations provide exemptions for an applicant who does not intend to source investment funds from the public. However, additional clarity on the import of the exemptions referenced in the text of the regulations may need to be provided by the CMA, as it would appear that Regulation 38 – 42 cited as being not applicable to these funds do not relate to the regulation of private equity or venture capital funds. The reference to Regulation 38 – 42 may thus have been a typographical error.
Conclusion
The regulations provide a timely intervention with respect to clarifying the regulatory framework applicable to venture capital and private equity funds in Uganda. Most importantly, the regulations level the ground with respect to the applicability of the tax incentives in the tax regime.
Disclaimer: “The views and opinions expressed on the site are personal and do not represent the official position of Stanbic Uganda and Khulani Capital.”
