Rwanda: Global Tax Guide
Table of Contents
Legislation
Nº 027/2022 of 20/10/2022 (Income Tax Law)
Law Nº 051/2023 of 05/09/2023 Amending the Income Tax Law
Ministerial Order Nº006/19/10/TC of 29/04/2019 providing for the carry forward of tax losses
Ministerial Order Nº 003/20/10/TC of 11/12/2020 establishing general rules on transfer pricing
Residence/Territorial Scope
Article 4 of the Income Tax Law provides that a company is considered to be a resident in Rwanda during a tax period where it fulfils one of the following requirements:
• where it is established according to Rwandan laws;
• it has a place of effective management in Rwanda at any time during that tax period.
Article 2 of Ministerial Order Nº003/19/10/TC of 29/04/2019 on determining permanent residence and the location of the effective place of management, provides that a company is deemed to have its location of effective place of management in Rwanda in one of the following circumstances:
• its day-to-day control and management are done in Rwanda;
• its shareholders’ meetings are held in Rwanda;
• its books of accounts are prepared and kept in Rwanda;
• its main shareholders or directors are residents of Rwanda.
Under Article 47 of the Income Tax Law, resident entities are liable to corporate income tax on whether from domestic or foreign operations.
Non-resident entities are liable to corporate income tax on business profit which is equivalent to the income tax applicable to resident entities through their permanent establishments in Rwanda.
Rwandan source income is defined in Article 6 of the Income Tax Law as including:
• services;
• activities of a crafts person, singer, artist and a player;
• sports, cultural and leisure activities;
• activities carried out by a non-resident in Rwanda through a permanent establishment in Rwanda;
• use, sale, lease and free transfer of business movable assets;
• sale, lease and free transfer of immovable assets allocated to the business;
• agricultural, fishing and forestry activities;
• usufruct and other rights attached to immovable assets and their sale if such rights are allocated to the business;
• investments in shares of companies;
• direct or indirect sale or transfer of shares or debentures;
• change of profits into shares that increases the capital of partners, except for financial institution with paid-up capital below the minimum requirement set by the National bank of Rwanda;
• distribution of profits among partners;
• lending, deposits and other similar income-generating activities;
• transfer, sale and lease of intellectual property;
• digital services;
• gaming activities
• any other income generating activity.
In addition, all payments made by a resident of Rwanda on services performed abroad, other than those consumed abroad, constitute taxable income.
Permanent Establishment
Article 5 of the Income Tax Law defined a permanent establishment as a known fixed place of business through which the business which gives rise to income is wholly or partially carried out.
Permanent establishment includes at least one of the following places:
• a place of management;
• a branch;
• a factory or a workshop;
• a mine, a quarry or any other place for an exploitation of natural resources;
• a site set for construction, construction site or a place where supervision or assembly works are carried out;
• place of provision of services including consulting services carried out by a person with the support of employees or other personnel for more than 90 days in a 12 month period, either continuously or intermittently.
Dependent agent
If a person acts on behalf of another person and has authority to negotiate or conclude contracts in that other person’s name or plays the principal role leading to the conclusion of such contracts, that other person is considered to have a permanent establishment in Rwanda.
A person is considered as not having a permanent establishment if that person:
• uses facilities solely for the purpose of storage of his or her goods or merchandise;
• maintains a stock of his or her goods or merchandise solely for the purpose of storage;
• maintains a stock of his or her goods or merchandise solely for the purpose of processing by another person;
• has a place of operation aimed purposely at purchasing goods or merchandise or collecting information related to his or her business;
• has a place of operation solely for the purpose of performing, within the context of his or her activities, any other activities of a preparatory nature or intended to make them more effective.
Independent agent
A person is also considered as not having a permanent establishment if he or she only carries out activities through an independent broker in the capital market, general commissionaire agent or any other private agent in accordance with procedures of the ordinary course of the activities of such an agent.
The fact that a company controls or is controlled by another company does not itself constitute either company a permanent establishment of the other.
Insurance entities
An insurance entity, except in regard to reinsurance, is considered to have a permanent establishment if it collects premiums or insures risks through a person other than a broker in capital markets or an independent agent.
Entities Within Scope
Article 44 of the Income Tax Law provides that the following taxpayers are subject to corporate income tax:
• a company established in accordance with Rwandan law and a foreign company registered in Rwanda;
• a cooperative society;
• a State-owned company; trustee, enforcer or protector of a trust;
• a foundation;
• a protected cell company or a cell of a protected cell company depending on the choice of the investor at the time of company registration;
• a non-resident in Rwanda person with a permanent establishment in Rwanda;
• an entity established by a District or the City of Kigali if that entity performs an income generating activity;
• an association or entity that is established to realise profits regardless of its nature.
Article 45 of the Income Tax Law exempts a number of entities from corporate income tax, including:
• the Government of Rwanda;
• the City of Kigali ;
• the National Bank of Rwanda;
• organisations that carry out only faithoriented activities, humanitarian, charitable, scientific or educational character unless the revenue received exceeds the corresponding expenses or if those entities conduct a business;
• international organisations or agencies of technical cooperation if such exemption is provided for by international agreements or an agreement concluded between these organisations and the Government of Rwanda;
• qualified pension funds;
• public institution in charge of social security;
• special purpose vehicle, unless the revenue received exceeds the corresponding expenses;
• common benefit foundations;
• resident trustee for income earned by a foreign trust.
Corporate Income Tax Rates
Article 48 of the Income Tax Law (as amended by Law Nº 051/2023 of 05/09/2023 Amending the Income Tax Law) provides that taxable profit is rounded down to the nearest FRW 1.000 and taxable at a rate of 28%.
However, a newly listed company on the capital market is taxed for a period of 5 years starting from the date of listing at the following rates:
• 20% if that company sells at least 40% of its shares to the public;
• 25% if that company sells at least 30% of its shares to the public.
In addition, special rates are provided under Article 49 of the Income Tax Law:
• small businesses pay a lump sum tax of 3% of turnover;
• micro-enterprises pay a flat rate tax;
• companies operating in the transport of persons and goods by road pay a flat rate tax.
Gaming activities
Article 50 of the Income Tax Law provides that companies carrying out gaming activities are subject to a 13% rate of corporate income tax on gaming activities calculated based on the difference between the total amount placed for betting and the winnings awarded.
Zero-rate
Article 46 of the Income Tax Law provides that deposit-taking Microfinance institutions pay corporate income tax at the rate of zero percent for a period of 5 years from the time of their approval.
Taxable Income and Allowances
Article 19 of the Income Tax Law provides that business profits are determined as the income from all business activities reduced by all business expenses. Business profit also includes proceeds of sale of any business asset and proceeds from asset sharing received during the tax period.
They are determined on the basis of the profit or loss account drawn up in accordance with Generally Accepted Accounting Principles.
Under Article 22 of the Income Tax Law, assets in a foreign currency, including claims and debts, are valued at the average exchange rate of the National Bank of Rwanda on the last day of the tax period. The profits or are included in business profit for that period.
Investment income is also taxable and includes any payments in cash or in kind to a person in the form of financial interest, dividends, royalties, proceeds from sale or transfer of shares, debentures, bonds, other intangibles or rent which has not been taxed as business income.
Capital gains
Articles 35-36 of the Income Tax Law provide that a 5% capital gain tax is charged on the direct or indirect sale or transfer of shares carried out in Rwanda or abroad.
The capital gain on sale or transfer of shares is the difference between the acquisition value of shares and their selling or transfer price.
However, capital gains from the sale or transfer of listed shares and other securities on the securities exchange operating in Rwanda and capital gain from the sale or transfer of shares or units of collective investment schemes are exempted from capital gain tax, under Article 38 of the Income Tax Law.
Rental income
Article 42 of the Income Tax Law provides that all revenue derived from rent of machinery and other equipment including agriculture and livestock equipment in Rwanda, are included in taxable income, reduced by:
• 10% of gross revenue as deemed expense;
• interest paid on loans;
• depreciation expenses.
Other income from the rent of movable and immovable assets incorporated as assets of entities which are subject to corporate income tax is consolidated in the total taxable income.
Dividend exemption
Under Article 47 of the Income Tax Law, dividends paid between resident companies and unrealised foreign exchange gains on outstanding loan are excluded from corporate taxable income.
Business restructuring
Article 54 of the Income Tax Law provides that in the case of a restructuring of a business entity, the transferring business entity is exempt from tax in respect of capital gains and losses realized on restructuring. The receiving business entity values the assets and liabilities involved at their book value in the hands of the transferring company at the time of restructuring. The receiving business entity depreciates the business assets according to the rules that would have applied to the transferring business entity as if the restructuring did not take place.
This applies to:
• a merger of two or more entities into a separate entity;
• the acquisition or a takeover of 50% or more of shares or voting rights, by number or value operated by shareholders in a resident entity;
• the acquisition or transfer of 50% or more of the assets or liabilities of a resident entity by another entity;
• the acquisition or transfer of the entire entity’s shares, assets or liabilities so that its existence is replaced by the purchasing or receiving entity;
• splitting of a resident entity in Rwanda into two or more resident entities in Rwanda.
Anti-abuse rules
Article 68 of the Income Tax Law provides for general anti-abuse rules.
This applies to:
• an arrangement whose principle purpose is to obtain a tax benefit;
• an arrangement that, in whole or in part, lacks commercial substance;
• an arrangement that creates rights or obligations that would not normally be created between persons dealing at arm’s length;
• an arrangement that may result, directly or indirectly in the abuse of the provisions of tax laws in Rwanda.
Where there is an avoidance arrangement between persons, the Tax Administration determines tax after taking at least one of the following actions:
• treating the avoidance arrangement as if it had not been carried out;
• recharacterizing the nature of any income, payment, expenditure or any other transaction;
• disallowing or reallocating any income, loss, deduction, allowance, relief, credit, exemption, or exclusion in whole or in part;
• deeming any two or more persons to be related persons or to be the same person.
Deductions
Article 24 of the Income Tax Law provides that in determining profits on business activities, deductions from taxable income must fulfil the following conditions:
• to have been incurred wholly and exclusively for the purpose of business and they are directly chargeable to the income;
• to correspond to a real expense and can be substantiated with proper invoices or receipts;
• to lead to a decrease in the net assets of the business;
• to have been used for activities related to the tax period in which they are incurred.
Non-deductible expenses
Article 25 of the Income Tax Law provides that the following expenses are not deductible from taxable income:
• dividends declared and profits paid-out to their beneficiaries;
• reserve allowances, savings and other special-purpose funds unless otherwise provided for by this Law;
• fines and similar penalties;
• donations, except donations given to non-profit making organisations whose value does not exceed 1% of the turnover;
• income tax paid in accordance with this Law or paid abroad on business profit and recoverable value added tax;
• personal consumption expenses;
• entertainment expenses except expenses on general sporting activities for employees;
• 20% of expenses paid on business overheads including telephone,water, electricity and fuel whose private and business use cannot be practically separable;
• the aggregate of expenses of management activities, technical services and royalty fees paid to a non-resident related person exceeding 2% of turnover;
• interest arising from loans between related persons paid or due on total loans in excess of 4 times of the amount of paid up equity which excludes provisions or reserves and retained earnings according to the balance sheet, which is drawn up in accordance with the generally accepted accounting principles;
• realised foreign exchange losses arising from total loans between related persons in excess of 4 times of the amount of paid up equity which excludes provisions or reserves and retained earnings according to the balance sheet, which is drawn up in accordance with the generally accepted accounting principles.
• unrealised foreign exchange losses.
Trading stock/work in progress
Under Article 26 of the Income Tax Law, trading stock is valued at cost price of its acquisition.
However, degraded or damaged stock is valued at the lower price between the cost price and the market price on the last day of the tax period.
Work in progress is valued at cost price incurred.
Depreciation
Article 27 of the Income Tax Law provides for a deduction for depreciation for business assets in determining taxable income.
Buildings, heavy industrial equipment and machineries are depreciated annually, each on its own, on the basis of the rate of depreciation equivalent to 5% of the cost of acquisition, construction, refining, rehabilitation or reconstruction.
Intangible assets purchased from a third party are depreciated annually, each on its own, on the basis of the rate of depreciation of 10% of the cost of acquisition or value addition.
Information and communication systems assets whose life is 10 years and above are depreciated annually on the basis of the rate of depreciation of 10% of the cost of acquisition.
The assets in the following categories are depreciated in a pooling system on the basis of the following rates respectively:
• computers and accessories, information and communication systems whose life is under 10 years depreciate at the rate of 50%;
• any other business asset depreciates at the rate of 25%.
Depreciation of leased assets is allowed to the lessee in case of finance lease and to the lessor in case of operating lease.
Land, fine arts, antiquities, jewellery and any other assets that are not subject to wear and tear or obsolescence are not depreciated.
If the depreciation basis does not exceed FRW 500,000, the asset is deductible in full.
Training, research and development expenses
Under Article 29 of the Income Tax Law, all training and research and development expenses, which promote business activities, are considered as deductible from taxable income, if they have been declared and planned in the activity plan of that tax period.
Expenses on training and research and development for the promotion of business activities do not concern the purchase of land, houses, buildings and other immovable properties including refining, rehabilitation and reconstruction as well as assets exploration expenses.
Bad debts
Article 30 of the Income Tax Law provides for a deduction for bad debts where the following conditions are met:
• an amount corresponding to the debt was previously included in the income of the taxpayer;
• the debt is written off in the books of accounts of the taxpayer;
• the taxpayer has taken all possible steps in pursuing payment and has shown a court decision declaring the insolvency of his/her debtor.
Tax Losses
Article 31 of the Income Tax Law provides that unutilised losses can be carried forward for up to 5 tax periods, earlier losses being deducted before later losses.
However, a taxpayer who applies to the tax administration may be allowed to carry forward the loss for more than 5 tax periods if he or she fulfils the requirements, as provided in a Ministerial Order.
Ministerial Order Nº006/19/10/TC of 29/04/2019 provides that a person who applies for carrying forward the loss for more than 5 tax periods must:
• submit a written application to the Commissioner General of Rwanda Revenue Authority for carrying forward the loss for more than 5 tax periods;
• submit his or her application with the declaration of tax for the fifth tax period;
• present sound reasons that caused the loss for which he or she is requesting to carry forward and reliable strategies to overcome such a loss;
• prove that the loss was derived from the investments carried out;
• submit the certified financial statements of the tax period corresponding to the loss;
• be a credible taxpayer who declares and promptly pays tax and not guilty of tax evasion in the previous 5 years;
• not have distributed any profits in the previous 5 years.
The period for carrying forward the loss cannot be extended for more than 5 years.
Foreign sourced losses cannot be deducted from either present or future domestic sourced business profits.
If the direct or indirect ownership of the share capital or the voting rights of a company, whose shares are not traded on a recognised stock exchange changes more than 25% by value or by number, the right to carry forward losses against business profits ceases, unless the change is a result of an internal business reorganisation which maintains all the shareholders, provided that those shareholders have been in the shareholding structure for a period not less than 3 years.
Withholding Tax
General
Article 60 of the Income Tax Law provides that a withholding tax of 15% of the total amount excluding value added tax is levied on payments made by resident persons including tax exempt persons if the payments are made to a person not registered in the Rwandan tax administration or to a registered person who does not have recent income tax declaration.
Payments subject to the withholding tax are:
• dividends;
• financial interests except:
o interests on deposits in financial institutions for at least a period of 1 year;
o interests on loans granted by a foreign development financial institution exempted from income tax under applicable law in the country of origin;
o interests that banks or deposit-taking microfinance institutions operating in Rwanda pay to banks or other foreign financial institutions;
• royalties;
• service fees including management and technical service fees except transport services;
• performance payments made to a crafts person, a musician, an artist, a player, sports, cultural or leisure activities irrespective of whether paid directly or indirectly;
• goods sold in Rwanda;
• profit after tax or retained earnings that are converted into shares, except for a financial institution with paid-up capital below the minimum requirement set by the National bank of Rwanda;
• profits repatriated from Rwanda;
• payments made in cash or in kind by a resident person in Rwanda on behalf of a non-resident in Rwanda contracted person provided for under the contract in addition to contractual remuneration;
• re-insurance premiums paid to a non-resident insurers except premiums paid to insurers that have signed agreements with the Government of Rwanda.
This withholding tax also applies to non-residents in Rwanda for payments of their permanent establishments.
The withholding tax is reduced to 5% for the following:
• dividends and interest on securities listed on capital markets if the beneficiary of the dividends or interest is a resident taxpayer of Rwanda or of the East African Community;
• interests derived from treasury bonds with a maturity of at least 3 years.
Gaming activities
Article 61 of the Income Tax Law provides that a 15% tax is withheld by a company that carries out gaming activities on the difference between winnings of the player and amount invested by the player.
Goods imported for commercial use
Article 62 of the Income Tax Law provides for a 5% withholding tax on the value of goods imported for commercial use on the cost insurance and freight (CIF) value before the goods are released by customs.
Transfer Pricing
Article 32 of the Income Tax Law provides for transfer pricing between related persons.
Related persons involved in controlled transactions are required to have documents justifying that their prices and profits are applied according to arm’s length principle.
If they do not, the tax administration adjusts transaction prices or profits in accordance with general rules on transfer pricing.
The taxpayer may request the tax administration to enter into an advance pricing agreement for a fixed period to determine modalities of setting prices and profit complying with arm’s length principle.
Ministerial Order Nº 003/20/10/TC of 11/12/2020 establishing general rules on transfer pricing provides further detailed provisions on the application of the transfer pricing rules. In particular, it provides for applicable transfer pricing methods, including:
• Comparable uncontrolled price method
• Resale price method
• Cost plus method
• Transactional net margin method
• Transactional profit split method
• Alternative method
CFC Rules
None