Business Formalization
Assesses the extent to which businesses are formally registered and comply with regulatory requirements. Low formalization can limit access to financing and legal protections.
Key Highlights
The relatively low score in registration implies that many Ugandan entrepreneurs operate in the informal sector. Insights from KIIs reveal that many businesses found the registration process difficult due to complexity, high costs, inefficiency, delays and corruption. Women faced additional challenges such as lack of knowledge and understanding (language and skills issues), travel and time constraints, and bribery demands from local leaders. However, some had an easier registration experience, aided by support from officials or the introduction of online systems. Peers also find registration financially burdensome and a lengthy process. As noted by one youth below and echoed by others
The amount of money that is needed for registering the business is a lot, and I don’t have [it] right now
Male, Youth, computer and stationary business, Mubende District
Encouraging and facilitating business registration could help entrepreneurs access formal support services, financial resources, and legal protections. The survey highlighted many of the practical obstacles to formal registration which will need to be addressed to support MSMEs to register their businesses and enjoy the benefits of registration.
The national entrepreneurship index of business registrations is only 39%, marginally better than just two other aspects of technology adoption and linkages (Figure 27). Sixty one percent of the business were not registered. Most of the registered businesses were sole trader (81.4%), followed by partnerships (10.3%)
Regarding location, registration is driven by Kampala, which as the highest proportion of registered MSMEs at 45.1%. The highest non-registration rates of business were found in the Eastern (70.2%), followed by Western (63.4%) regions
The data reveals significant variations in formal business registration across the top 10 sectors in Uganda. Wholesale and retail trade, the largest sector, has a high proportion of unregistered businesses (35%) compared to registered ones (27%). Similarly, Accommodation and food service activities and Agriculture, Forestry, and Fishing have higher shares of unregistered businesses relative to their registered counterparts. In contrast, Human Health and Social Work Activities and Financial and Insurance Activities have higher registration levels compared to their unregistered segments. The data suggests that larger sectors tend to have higher informality rates, while more established and regulated sectors have better registration levels, highlighting the need for targeted interventions to promote business formalization.
Entrepreneurs expressed frustration with the complexity and high costs associated with the registration process, which act as major deterrents. Business owners expressed frustration by the inefficiency and delays in the registration process, corruption is a pervasive issue, with many realizing that bribery is almost a prerequisite for navigating the registration process smoothly
My friend told me that the process needs a lot of money which I have not got. I don’t remember the amount, but it is like UGX 1,000,000
Male, Youth, Motel business Wakiso, District
The views on cost of registration are supported by a recent study by EPRC (2024), whose findings established that the key reasons why informal businesses in Uganda do not want to register include poor perceptions about high registration costs (non-registered businesses believed registration fees are UGX 224,967 at URA, UGX 168,238 at URSB, and UGX 50,113 at local authorities), annual tax payments (perceived average of UGX 357,019), and compliance costs (UGX 91,454 for URA and UGX 47,108 for local authorities). Additional factors were the perceived lengthy registration process (average of 9 days for URA and URSB, 3 days for local authorities), distance to registration points (16.6 km to URA vs 2.7 km to local authorities), expected benefits of remaining informal such as lower operating costs (22%), flexibility (19%), and non-exposure to third parties (58%), as well as the absence of supportive policies and laws to reduce informality. Despite the perceptions and experiences shared by some entrepreneurs regarding the high costs associated with business registration, it is important to note that obtaining a Tax Identification Number (TIN) from the Uganda Revenue Authority (URA) is free of charge. Additionally, the official registration fees at the Uganda Registration Services Bureau (URSB) are relatively affordable, with costs not exceeding UGX 24,000 for a sole proprietorship and UGX 60,000 for a limited company. These facts highlight the need for better communication and awareness-raising initiatives to ensure that entrepreneurs have accurate information about the registration process and associated costs, helping to dispel misconceptions that may deter them from formalizing their businesses.
Women face unique challenges that often involve additional steps or higher costs, such as bribery for recommendation letters or dealing with more stringent procedural demands. Men also reported procedural difficulties, but mainly concerned with inefficiency and costs associated with the process. As noted by some business owners
You sometimes go to the Chairman LC3, and he asks for some money before giving you a recommendation letter to take to the district health inspector
Female, Youth, Drug shop business, Kayunga District
Younger entrepreneurs cited a lack of knowledge and understanding of the registration process as a significant barrier. The process is seen as lengthy and complex, discouraging many from formalizing their businesses. Older business owners tend to emphasize the bureaucratic inefficiencies and corruption that complicate the registration process.
In rural regions, the difficulties often involve traveling long distances to access registration offices and higher associated costs. Urban business owners, while having better access to registration offices, still face challenges like bureaucratic delays and higher fees.
Smaller enterprises frequently highlighted the disproportionate tax burdens and the procedural complexity relative to their limited resources. While these businesses sometimes manage to navigate the registration process, it often comes at a significant cost and effort. Overall, the experiences of registration are mixed, with some business owners finding hard and others easy. Those finding it easy cited the support of officials and online systems, urban location while others face significant challenges due to complexity, high costs, corruption, and lack of knowledge. Women, youth, and rural businesses often encounter unique difficulties in the registration process.
