Rwanda - PKF International - 2014.pdf · rendered within Rwanda although consumed outside Rwanda will be subject to VAT at the rate of 18%. • A withholding tax of 15% is levied

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PKF Worldwide Tax Guide 2014 1

FOREWORD A country's tax regime is always a key factor for any business considering moving into new markets. What is the corporate tax rate? Are there any incentives for overseas businesses? Are there double tax treaties in place? How will foreign source income be taxed? Since 1994, the PKF network of independent member firms, administered by PKF International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide international businesses with the answers to these key tax questions. As you will appreciate, the production of the WWTG is a huge team effort and we would like to thank all tax experts within PKF member firms who gave up their time to contribute the vital information on their country's taxes that forms the heart of this publication. The PKF Worldwide Tax Guide 2014 (WWTG) is an annual publication that provides an overview of the taxation and business regulation regimes of the world's most significant trading countries. In compiling this publication, member firms of the PKF network have based their summaries on information current on 1 January 2014, while also noting imminent changes where necessary. On a country-by-country basis, each summary such as this one, addresses the major taxes applicable to business; how taxable income is determined; sundry other related taxation and business issues; and the country's personal tax regime. The final section of each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. While the WWTG should not to be regarded as offering a complete explanation of the taxation issues in each country, we hope readers will use the publication as their first point of reference and then use the services of their local PKF member firm to provide specific information and advice. Services provided by member firms include: Assurance & Advisory;

Financial Planning / Wealth Management;

Corporate Finance;

Management Consultancy;

IT Consultancy;

Insolvency - Corporate and Personal;

Taxation;

Forensic Accounting; and,

Hotel Consultancy. In addition to the printed version of the WWTG, individual country taxation guides such as this are available in PDF format which can be downloaded from the PKF website at www.pkf.com

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IMPORTANT DISCLAIMER This publication should not be regarded as offering a complete explanation of the taxation matters that are contained within this publication. This publication has been sold or distributed on the express terms and understanding that the publishers and the authors are not responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication, nor for any error in, or omission from, this publication. The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this publication. Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances. PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member firm or firms. PKF INTERNATIONAL LIMITED JUNE 2014 © PKF INTERNATIONAL LIMITED All RIGHTS RESERVED USE APPROVED WITH ATTRIBUTION

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STRUCTURE OF COUNTRY DESCRIPTIONS A. TAXES PAYABLE

COMPANY TAX CAPITAL GAINS TAX BRANCH PROFITS TAX VALUE ADDED TAX (VAT) FRINGE AND EMPLOYMENT BENEFITS TAX MOTOR VEHICLES HOUSING LOANS TO EMPLOYEES OTHER BENEFITS LOCAL TAXES OTHER TAXES MEDICAL INSURANCE SCHEME (RAMA) SOCIAL SECURITY FUND (CSR)

B. DETERMINATION OF TAXABLE INCOME

CAPITAL ALLOWANCES OTHER DEDUCTIONS DEPRECIATION STOCK / INVENTORY CAPITAL GAINS AND LOSSES DIVIDENDS INTEREST DEDUCTIONS LOSSES FOREIGN SOURCED INCOME INCENTIVES

C. FOREIGN TAX RELIEF D. CORPORATE GROUPS E. RELATED PARTY TRANSACTIONS F. WITHHOLDING TAX G. EXCHANGE CONTROL H. PERSONAL TAX I. TREATY WITHHOLDING TAX RATES

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MEMBER FIRM For further advice or information please contact: City Name Contact information Kigali Boniface Mutua +250 788 713619 bmutua®rw.pkfea.com

BASIC FACTS Full name: Republic of Rwanda Capital: Kigali Main languages: Kinyarwanda, French, English Population: 12.01 million (2014 estimate) Major religion: Christianity Monetary unit: Rwandan Franc (RWF) Internet domain: .rw Int. dialling code: +250

KEY TAX POINTS • Companies pay company tax based on computed tax profits at a rate of 30%. • Categories of supplies of services and goods include exempt supplies and taxable supplies (i.e.

at a rate of 0% and 18% tor zero rated supplies and standard rated respectively). Export of goods and services physically rendered outside Rwanda are zero rated supplies. Services rendered within Rwanda although consumed outside Rwanda will be subject to VAT at the rate of 18%.

• A withholding tax of 15% is levied on dividends, interest, royalties and some other payments

made by resident individuals or resident entities including tax-exempt entities.

A. TAXES PAYABLE

COMPANY TAX Companies pay company tax based on computed tax profits at a rate of 30%. A registered investment entity that operates in a Free Trade Zone or a foreign company that has its headquarters in Rwanda and fulfils the requirements stipulated in the Rwandan Law on Investment Promotion, are entitled to pay corporate income tax at the rate of 0%. Venture capital companies registered with the capital markets Authority in Rwanda benefit from a corporate income tax of 0% for a period of five years from the date the decision has been taken. Newly listed companies on capital market shall be taxed for a period of 5 years on the following rates: (i) 20% if those companies sell at least 40% of their shares to the public;

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(ii) 25% if those companies sell at least 30% of their shares to the public; (iii) 28% if those companies sell at least 20% of their shares to the public. A registered investor is entitled to a profit tax discount of: (i) 2% if investor employees between 100 and 200 Rwandans; (ii) 5% if investor employees between 201 and 400 Rwandans; (iii) 6% if investor employees between 400 and 900 Rwandans; (iv) 7% if investor employees more than 900 Rwandans.

CAPITAL GAINS TAX

Capital gains tax applicable at a rate of 30% on capital gains arising from the disposal (sale or cession) of immovable commercial property. Gains derived from disposals of other business assets are aggregated with other income and are taxed at the normal corporate income tax rate. Gains arising from disposal of shares listed on the Rwanda Stock Exchange are exempt from tax. In case of corporate re-organisation, the transferring company is exempt from tax in respect of capital gains and losses realised on re-organisation. Re-organisations means: (i) A merger of two or more resident companies; (ii) The acquisition or takeover of 50% or more of shares or voting rights, by number or value in a

resident company in exchange for shares of purchasing company; (iii) The acquisition of 50% or more of assets and liabilities of a resident company by another

resident company solely in exchange of shares in the purchasing company; (iv) Splitting of a resident company into two or more resident companies.

BRANCH PROFITS TAX

Branch of a foreign entity pays a tax rate of 30%.

VALUE ADDED TAX (VAT)

Supplies of goods and services for Value Added Tax (VAT) purposes are either exempt, zero rated or standard rated. The standard rate of VAT is 18%, The export of goods and services physically rendered outside Rwanda are zero rated supplies. Services rendered within Rwanda, even if consumed outside Rwanda, are subject to VAT at the rate of 18%. Persons with investment certificate qualify for VAT exemption on several capital goods imported.

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FRINGE AND EMPLOYMENT BENEFITS TAX

Generally, benefits in kind received by an employee are included in taxable income in consideration of market value for tax purposes.

MOTOR VEHICLES

The benefit is valued at 10% of the employment income excluding benefits in kind.

HOUSING

The benefit is valued at 20% of the employment income excluding benefits in kind.

LOANS TO EMPLOYEES

Tax is payable on interest free or low interest loan including salary advance exceeding three months granted to employees. The benefit valued as the difference between the interest rate offered to commercial banks by the National Bank of Rwanda and the actual rate paid by employee.

OTHER BENEFITS

Benefits provided by an employer to a person related to an employee when there is no service rendered, are treated as if provided to the employee. Benefits provided by a company to one of its members are considered in the same manner as benefits an employer gives to an employee

LOCAL TAXES

Employment income is taxed on a withholding tax basis known as Pay-As-You-Earn (PAYE) at a graduating scale of 10% to 30%.

OTHER TAXES:

MEDICAL INSURANCE SCHEME (RAMA)

La Rwandaise D'Assurance Maladie (RAMA) is the country's medical insurance scheme. Employees contribute 7.5% and employers contribute 7.5%.

SOCIAL SECURITY FUND (CSR)

Contributions are set at 3% for employees and 5% for employers in respect of the employees' monthly income. Total remittance is 8%.

B. DETERMINATION OF TAXABLE INCOME Taxable income is accounting income adjusted for non-taxable income and for non-deductible expenses. Expenses are deductible if they are incurred wholly and exclusively in the production of income.

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CAPITAL ALLOWANCES Investment allowance is applicable in the first tax period of purchase and/or of use for amounts invested in new or used assets. To qualify for Investment allowance, the following two conditions must be satisfied concurrently:-

(1) The amount of business assets invested equals to RWF 30,000,000 excluding motor vehicles

that carry less than eight persons, except those exclusively used in a tourist business; and, (2) The business assets are held at the establishment for at least three tax periods after the tax

period in which the investment allowance was taken into consideration. The rates for Investment allowance are as follows: • If registered business is located in Kigali, 40%. • If registered business is located outside Kigali or falls within the priority sectors determined by

the Investment Code of Rwanda, 50%. The investment allowance reduces the acquisition or construction cost, as well as the basic depreciation value of pooled business assets. The rates for wear and tear allowances for business assets deductible from taxable profits are as follows:

Wear and Tear Rate

Heavy machinery and equipment (each asset on its own on a straight line basis) 5%

Intangible assets including goodwill (each asset on its own on a straight line) 10%

Computers and accessories, information and communication systems, software products and data equipment (under a pooling system on straight line basis)

50%

All other business assets (under a pooling system on straight line basis) 25%

Industrial building allowances Rate

Buildings (excluding land) including built-in equipment and plant 5%

OTHER DEDUCTIONS Cost of bad debts (subject to recovery procedures) allowable. However, commercial banks and leasing entities duly licensed as such are allowed to deduct any increase of the mandatory reserve for non-performing loans as required by the directives related to management of bank loans and similar institutions of the National Bank of Rwanda.

DEPRECIATION This is an accounting expense not allowable for tax purposes but wear and tear allowances as shown above are given instead.

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STOCK / INVENTORY Trading stock is valued at a lower of cost price or market price on the last day of the tax period. Work in progress is valued at cost price. The cost of sales is deducted as allowable expenditure before arriving at taxable profits.

CAPITAL GAINS AND LOSSES Proceeds of sale of any business asset and liquidation proceeds received during the tax period are included in business profit.

DIVIDENDS Dividends are taxed on a withholding tax basis which is final tax. Standard rate is 15% subject to provisions of double taxation relief, where applicable.

INTEREST DEDUCTIONS Interest incurred wholly and exclusively in the production of income is allowable. However, where a company is controlled by a non-resident person, other than commercial banks and insurance companies, the interest deductibility is restricted only to the extent that the total indebtedness of the company does not exceed four times the paid-up share capital and revenue reserves (thinly capitalised).

LOSSES Net operating losses allowed for carry forward to a maximum of five years by deducting earlier losses before later losses. However, incentive not applicable where the direct and indirect ownership of the share capital or the voting rights of a company, which shares are not traded on a recognized stock exchange changes more than 25% by value or by number.

FOREIGN SOURCED INCOME

The following taxable payments are excluded from taxable income resulting from employment: (i) Employment income received by an employee who is not a citizen of Rwanda from a foreign

government or a non-governmental organization under an agreement signed by the Government of Rwanda and when the income is received for the performance of aid services in Rwanda;

(ii) Employment income received from an employer who is not a resident in Rwanda by a non-

resident individual for the performance of services in Rwanda, unless such services are related to a permanent establishment of the employer in Rwanda.

INCENTIVES

Income accruing to registered collective investment schemes and employees' shares scheme are exempted from income tax. A registered investment entity that operates in a Free Trade Zone or a foreign company that has its

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headquarters in Rwanda and fulfils the requirements stipulated in the Rwandan Law on Investment Promotion, are entitled to exemption from withholding tax mentioned in Article 51 of the Law no 16/2005 of 18/08/2005 on direct taxes on income and tax free repatriation of profit. Income derived from agricultural and livestock activities is exempt, if the proceeds from these activities do not exceed RWF 12,000,000 in a tax period. Capital deductions are as given under 'Capital allowances' above. A registered investment entity that operates in a Free Trade Zone and foreign companies with headquarters in Rwanda who fulfil II the requirements stipulated in the Investment code of Rwanda is entitled to the following preferential tax rates: • Pay corporate income tax at the rate of 0%; • Exemption from withholding tax; and, • Tax free repatriation of profits. Export of commodities and services that bring to the county revenue of: • Between USD 3 million and USD 5 million qualify for a tax discount of 3%; and, • More than USD 5 million qualify for a tax discount of 5%.

C. FOREIGN TAX RELIEF Foreign tax relief is limited only to countries with double taxation relief.

D. CORPORATE GROUPS The income tax law does not allow the filing of consolidated returns, the combining of profits and losses of affiliated companies or the transfer of losses from loss companies to profitable members of the same group of companies. Generally for tax purposes, a corporation tax rate of 30% applies to all separately incorporated companies irrespective of groups both in Rwanda and outside for profits derived in Rwanda.

E. RELATED PARTY TRANSACTIONS Related party transactions are allowable expenses if incurred wholly and exclusively in the production of income and taxed as income if earned or accrued as business activities. Transfer pricing adjustment rules apply. The Rwandan law on direct taxes on income stipulates that where conditions are made or imposed between related persons carrying out their commercial relationship which differ from those which would be applied between independent persons, the Commissioner General, may direct that the income of one or more of those related persons be adjusted to include profits that would have been made if they operated as independent persons. Provisions for advance agreements with Commissioner General exist.

F. WITHHOLDING TAX A withholding tax of 15% is levied on the following payments made by resident individuals or resident entities including tax-exempt entities:

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(i) Dividends* except those governed by Article 45 of this Law no 16/2005 of 18/08/2005 on direct taxes on income;

(ii) Interests*; (iii) Royalties; (iv) Service fees including management and technical service fees; (v) Performance payments made to an artist, a musician or a sportsperson irrespective of whether

paid directly or through an entity that is not resident in Rwanda; (vi) Lottery and other gambling proceeds; (vii) Goods supplied by companies or physical persons not registered in tax administration. * Withholding tax applicable on dividends and interest is a final tax. However, withholding tax on

dividends and interest income on securities listed on capital markets and interest arising from investments in listed bonds with a maturity of 3 years and above shall be reduced from 15% to 5% when the person who withhold is a resident taxpayer of Rwanda or of the East African Community.

Withholding tax of 5% of the value of goods imported for commercial use shall be paid at Customs on the CIF {cost insurance and freight value) value before the goods are released by Customs. Withholding tax of 3% on the sum of invoice, excluding the value added tax, is retained on payments by public institutions to the winner of public tenders. The following taxpayers are exempt from withholding tax: (i) Those whose business profit is exempt from taxation; and, (ii) Those who have tax clearance certificate issued by the Commissioner General of Rwanda

Revenue Authority.

G. EXCHANGE CONTROL The currency in Rwanda is the Rwandan franc (RWF). Rwanda does not impose foreign exchange controls.

H. PERSONAL TAX The tax rates are as follows:

Tax bands for monthly income (RWF)

Rate

0 to 30,000 0%

30,001 to 100,000 20%

100,001 and greater than 30% plus RWF 14,000

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I. TREATY WITHHOLDING TAX RATES Rwanda entered into double tax treaties with Belgium and South Africa. However, the double taxation treaty with Mauritius was revoked and is currently undergoing a review process for amendments and subsequently ratification into law in the near future. Therefore, currently transactions with entities related to Mauritius are not eligible for double taxation relief. Where Rwanda has double taxation treaties, the withholding tax rates are as follows:

DTA South Africa Belgium

Dividends 10% or 20%* 0% or 15%*

Interest 0% or 10%** 0% or 10%**

Royalties 10%*** 10%***

Technical Fees 10%*** 10%***

DTA of Rwanda - South Africa * Withholding applicable is 10% of the gross amount of the dividends if the beneficial owner is a

company which holds at least 25% of the capital of the company paying the dividends; or 20% of the gross amount of the dividends in all other cases. Withholding tax shall not apply if the beneficial owner of the dividends carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. Instead will be considered while determining the profits of a permanent establishment.

** Exempted from tax where interest is derived by the Government of the other Contracting State

or a political subdivision or a local authority thereof, or any agency wholly owned and controlled by that Government or subdivision or authority. Withholding tax shall not apply if the beneficial owner of the interest carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. Instead will be considered while determining the profits of a permanent establishment.

*** Withholding tax shall not apply if the beneficial owner of the royalties/technical fees carries on

business in the other Contracting State in which the royalties/ technical fees arise through a permanent establishment situated therein and the right or property in respect of which the royalties/ technical fees are paid is effectively connected with such permanent establishment. Instead will be considered while determining the profits of a permanent establishment.

OTA of Rwanda - Belgium

* Exempted from tax where beneficial owner of the dividends is a company which holds, for an uninterrupted period of at least twelve months, shares representing directly at least 25% of the capital of the company paying the dividends.

** Exempted from tax where recipient of interest is a company which holds directly or indirectly at

least 35% of the capital of the company paying the interest, insofar as the total amount of the loan(s) granted by the receiving company does not exceed an amount equal to the equity of the

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paying company. *** Withholding tax shall not apply if the beneficial owner of the royalties/technical fees carries on

business in the other Contracting State in which the royalties/ technical fees arise through a permanent establishment situated therein and the right or property in respect of which the royalties/ technical fees are paid is effectively connected with such permanent establishment. Instead will be considered while determining the profits of a permanent establishment.

Documents

Rwanda - PKF International - 2014.pdf · rendered within Rwanda although consumed outside Rwanda will be subject to VAT at the rate of 18%. • A withholding tax of 15% is levied