Ratio Magazine :: The Inside Track to East Africa’s Economies - Rwanda: How Supportive is Rwanda’s Tax Code of New Investors?

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Friday, 18 April 2008

Page 2 of 2

The Rwanda Revenue Authority (RRA) has included these provisions in its 2006 revision to provide against thin capitalisation of foreign owned companies, although a cynical view would see it as protectionism for local banks, who charge interest rates in the range of 15% - 18%.

For foreign companies doing business with Rwandan clients, but not registered here, a 15% withholding tax is deducted from the invoice. This amount used to be 20% before the 2006 revision, and is not optional as it is paid directly by the customer to the RRA.

Personal Taxes
The personal tax rate is 30% for annual incomes over RWF1.2m (USD2,000), which includes almost all expatriates. There are lower bands 0% up to RWF360,000 and 20% for RWF360,001 to RWF1.2m , but these do not apply to foreigners.

Currently there is no capital gains tax, although this is likely to be amended in the next set of revisions. In any event, the current practice is to treat capital gains as income, and hence it is also taxed at 30%

Social security deductions of 3% from gross salary are mandatory. Benefits in kind are also taxable; a company car means that 10% of one’s gross salary is added back when calculating tax, and the use of a house results in an increase of 20%.

Real Estate Taxes
Currently, real estate taxes are limited to stamp duty on purchase, which is 6%. However, this is in the process of being updated to a flat fee of USD50, regardless of property value. There is also a 2.75% charge to have a property mortgaged, but this is also being reduced to a flat fee of USD50.

Property leases are normally granted for 49 years once in possession of a title deed, and cost approximately USD1,000 annually. The transfer of commercial properties incurs 18% VAT, but residential properties are exempt from this, regardless of value.

RIEPA Registration
Registering with the Rwanda Investment & Export Promotion Agency (RIEPA) as a foreign investor has tax (and other) benefits. The minimum investment is USD250,000 (COMESA members only need to invest USD100,000) to secure certification; some of the tax benefits of registering with RIEPA are:

Zero-rated VAT on imported capital goods and raw materials subject to zero-rated tariffs;
A flat tax of 5% in lieu of all other duties for capital goods and raw materials not subject to zero-rated tariffs, upon application of each transaction;
Accelerated depreciation of capital costs;
Tax reductions on exports (in excess of USD2 million) and/or employment (in excess of 100)

Investors should be aware that there have been a few instances of RIEPA-certified companies that have found it challenging to actually benefit from some of these incentives due to a disconnect between RIEPA and the RRA with regards to implementation of the investment code.

Company Establishment
Establishing a company is straight forward and costs just under USD2,000 when utilising the services of a lawyer or accountant. All companies require two shareholders at a minimum, both of which can be corporates or individuals, of which one (or their representative) must be present in Rwanda to sign the legal paperwork. The process normally takes two to three weeks if all the paperwork is in order.

Conclusion
Rwanda is a growing and vibrant, if small, market. The tax code is straightforward with few grey areas, and the RRA appears to be willing to engage in dialogue with prospective investors. However, the tax rates are on the higher side for the region, probably as a result of the need to generate revenue to finance the budget, which is currently largely financed by donors. Large, high-margin, value-adding businesses will find the tax costs more palatable then smaller traders, and are the most likely to benefit from being RIEPA registered businesses. Smaller businesses may find the actual tax costs, as well as the required compliance, make for a challenging but not impossible environment in which to capitalise on Rwanda’s opportunities.

About the Author

An experienced private equity professional, Ritesh founded Ndovu Partners to assist firms in the East African Community unlock value in their assets, in addition to identifying and capitalising on investment opportunities in the region. Having begun his career at Credit Suisse, where he worked in the Investment Banking Division and Private Equity Funds Group, Ritesh later established the London office of Probitas Partners, a boutique investment bank focused on private equity, where he was a Vice President. With five years of private equity experience, Ritesh took over a business providing human resource solutions to the pharmaceutical industry in the UK, which he restructured, re-branded, introduced new systems to and successfully sold to a trade buyer. Ritesh holds a BSc in Management from the London School of Economics & Political Science, where he is an Honorary Lifetime Student.

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