ATLA

The personal income tax shall be levied on an individual annual income.

Each tax period, a resident taxpayer is liable to personal income tax from all domestic and foreign sources. 

However, a resident taxpayer who was not resident in Rwanda in the five (5) years immediately prior to becoming resident, who works as an expert or a professional directly for an entity carrying out Kigali International Financial Centre licensed activities, is exempted from personal income tax on foreign sourced income during the first five (5) years following the date of becoming resident. 

A non-resident taxpayer is only liable to personal income tax which has a source in Rwanda.

Individual taxable income derives from the following: 

1° employment; 

2° business activities; 

3° investment; 

4° capital gain; 

5° use, sale, lease or free transfer of an immovable property allocated to the business;

6° use, sale, lease or free transfer of movable property allocated to the business.

Taxable income is rounded to the nearest thousand Rwandan francs (FRW 1,000) and taxed following the real profit according to the following tables: 

Table 1: First year following the date of commencement of this law

Table 2: From the second year after the commencement of this law

However, a person who operates a small enterprise pays a lumpsum tax of three percent (3%) of his or her annual turnover. 

A person who operates a small enterprise may apply to be allowed to opt out of the flat-rate lumpsum taxation scheme, and choose to be subject to actual taxation scheme when he or she decides to carry out accounting in compliance with relevant laws. When he or she opt for the real regime, he or she must inform the Tax Administration and this decision is irrevocable for a period of three (3) years starting from the date he or she has informed the Tax Administration. 

A ministerial order determines simplified accounting method used by small businesses.

Micro-enterprises following their annual turnover must pay the flat amount of tax as per the following table:

The provisions of Paragraphs 2 and 5 of this Article are not applicable to an individual who exercises a liberal profession. 

Without prejudice to the right to be governed by the real profit tax regime, the activities of road transport of persons and goods are imposed a flat amount of tax determined as indicated in the annex to this Law.

Employment income includes all payments paid to an employee by his/her employer in cash or in kind in relation to the work performed. Those payments are composed of the following: 

1° wages, salary, leave pay, sick pay and medical allowance, payment in lieu of leave for an employee who stops working before benefiting from his/her annual leave, sitting allowances, commissions, bonuses and gratuity; 

2° allowances relating to the cost of living, subsistence allowances, housing allowances, and entertainment or travel allowances;

3° any discharge or reimbursement of expenses incurred by the employee or an associate; 

4° payments to the employee working in exceptional conditions of employment; 

5° payments for redundancy or loss or termination of contract; 

6° pension payments; 

7° other payments made in respect of previous, current or future employment.

The following payments are not included in the calculation of taxable employment income: 

1° the discharge or reimbursement of expenses incurred by the employee or his/her associate: 

      a. wholly for business activities of the employer;

      b. those that are deducted or would be deductible in calculating the employee’s income from all his/her business activities;

2° contributions made by the employer for the employee to the public institution in charge of social security; 

3° pension payment from the public institution in charge of social security or from a qualified pension fund; 

4° employment income received by an employee who is not a Rwandan citizen from a foreign Government or a nongovernmental organization under an agreement signed by the Government of Rwanda, when the income is received for the performance of aid services in Rwanda;

5° 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.

Persons that are exempted from employment income tax in Rwanda as provided for by agreements referred to under Article 16 of this Law, due to services rendered in the exercise of their official duties are the following: 

1° a foreigner who represents his/her country in Rwanda; 

2° any other individual employed in any Embassy, Legation, Consulate or Mission of a foreign state performing State affairs, who is a national of that State and who owns a diplomatic passport; 

3° a non-citizen individual employed by an international organization.

Benefits in kind received by an employee are included in taxable employment income in consideration of market value as follows:

1° there shall be added to the taxable income an amount meant for the availability and use of a motor vehicle to an employee during a tax period, valued at ten percent (10%) of the employment income excluding benefits in kind; 

2° there shall be added to the taxable income, benefits on a loan including advance on a salary exceeding a three (3) months’ salary given to an employee valued at a difference between: 

    a. the interest on loan, which would have been paid by the employee during the month in which the loan was received, calculated at a rate of interest offered to commercial banks by the National Bank of Rwanda; 

    b. and the actual interest paid by the employee in that month; 

3° there shall be added to the taxable income an amount meant for use or availability for use of premises including or excluding any household equipment of other contents by an employer for residential occupation by an employee during a tax period, valued at twenty percent (20%) of the employment income excluding benefits in kind. 

Subject to provisions of Paragraph One of this Article, following benefits in kind are considered in the same manner as benefits an employer gives to an employee: 

1° benefits in kind provided by an employer to a person related to an employee when there is no service rendered; 

2° benefits in kind provided by a company to one of its members. 

However, a rent of house or motor vehicle directly paid by an employer for an employee is taxed as any income referred to in Article 15 of this Law.

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. 

Business profits are determined per tax period on the basis of the profit or loss account drawn up in accordance with Generally Accepted Accounting Principles, subject to the provisions of this Law. 

The Tax Administration may use any other accounting method or other source of information in accordance with the law, to ensure the accuracy of the taxpayer’s profit.

Tax exemption for income accrued from savings in a collective investment scheme and employees’ shares within a company

Income accruing from savings in collective investment schemes and Rwandan employees’ shares within the employing company are exempted from income tax.

However, the exemption referred to in Paragraph One of this Article does not apply to the employee whose proportion of the company’s share capital is greater than ten percent (10%).

Income earned by an agriculturalist or a pastoralist on agricultural or livestock activities is exempt if the turnover from agricultural or livestock activities do not exceed twelve million Rwanda francs (FRW 12,000,000) in a tax period. 

In case the turnover exceeds twelve million Rwandan francs (FRW 12,000,000), the latter amount is excluded from the taxable income.

During the conclusion of the tax period, the assets in 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 loss therein are included in the assessment of business profit for that period.

Business profits relating to a long-term contract are computed on the basis of the percentage of activities completed during tax period. 

The percentage of activities completed during any tax period is determined by comparing the total expenses allocated to the contract and incurred before the end of the tax period with the estimated total contract expenses including any variations of fluctuations. 

A loss in a tax period in which a long-term contract is completed may be carried back and offset against previously taxed business profit from that contract to the extent it cannot be absorbed by business profit in the tax period of completion.

In determining profits on business activities, deductions from taxable income must fulfil the following: 

1° to have been incurred wholly and exclusively for the purpose of business and they are directly chargeable to the income; 

2° to correspond to a real expense and can be substantiated with proper invoice or receipts accepted by the tax administration; 

3° to lead to a decrease in the net assets of the business; 

4° to have been used for activities related to the tax period in which they are incurred.

The following expenses are not deductible from taxable income:

1° dividends declared and profits paid-out to their beneficiaries; 

2° reserve allowances, savings and other special-purpose funds unless otherwise provided for by this Law; 

3° fines and similar penalties; 

4° donations, except donations given to nonprofit making organisations whose value does not exceed one percent (1%) of the turnover; 

5° income tax paid in accordance with this Law or paid abroad on business profit and recoverable value added tax; 

6° personal consumption expenses; 

7° entertainment expenses except expenses on general sporting activities for employees; 

8° twenty per cent (20%) of expenses paid on business overheads including telephone water, electricity and fuel whose private and business use cannot be practically separable; 

9° the aggregate of expenses of management activities, technical services and royalty fees paid to a non-resident related person exceeding two percent (2%) of the turnover of the taxpayer; 

10° interest arising from loans between related persons paid or due on total loans in excess of four (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; 

11° realised foreign exchange loss arising from total loans between related persons in excess of four (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. 

12° unrealised foreign exchange losses. 

Provisions under Item 10° of this Article do not apply to commercial banks, insurance companies and other financial institutions. 

However, a mandatory contribution paid by a taxpayer is allowed as deductible expense.

The 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.

In the determination of business profit, depreciation for business assets is deducted from 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 five percent (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 ten percent (10%) of the cost of acquisition or value addition. 

Information and communication systems assets whose life is ten (10) years and above are depreciated annually on the basis of the rate of depreciation of ten percent (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: 

1° computers and accessories, information and communication systems whose life is under ten (10) years depreciate at the rate of fifty percent (50%); 

2° any other business asset depreciates at the rate of twenty-five percent (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.

Notwithstanding the provisions of Paragraphs 2 and 3 of Article 27 of this Law, the depreciation basis for assets is the acquisition value. 

However, for the assets depreciated in the pooling system, their depreciation basis is the book value in the balance sheet at the beginning of the tax period: 

1° increased by the cost of assets acquired or created and the cost of refining, rehabilitation and reconstruction of the assets in the tax period; 

2° decreased by the sale price of assets sold and the compensation received for the loss of assets due to natural calamities or other conversion during the tax period. 

If the depreciation basis is less than zero (0), that amount is added to the business profit and the depreciation basis becomes zero (0). 

If the depreciation basis does not exceed five hundred thousand Rwanda francs (FRW 500,000), the entire depreciation basis is deemed to be a deductible expense.

During a tax period, all training and research and development expenses incurred by a taxpayer, which promote business activities, are considered as deductible from taxable income in accordance with provisions of Article 24 of this Law, 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.

In the determination of business profit, a deduction is allowed for bad debts if the following conditions are fulfilled: 

1° if an amount corresponding to the debt was previously included in the income of the taxpayer; 

2° if the debt is written off in the books of accounts of the taxpayer;

3° if the taxpayer has taken all possible steps in pursuing payment and has shown a court decision declaring the insolvency of his/her debtor.

However, for an individual whose debt is less than three million Rwandan francs (FRW 3,000,000) in addition to the conditions referred to in items 1° and 2° of Paragraph One of this Article, the taxpayer provides proof that he has taken all reasonable steps over a period of three (3) years to recover the debt. 

Notwithstanding the provisions of Paragraph One of this Article, a bank, a similar entity and a leasing entity duly licensed as such are allowed to deduct from taxable income, any increase of the mandatory reserve for nonperforming loans as required by the directives related to management of loans of the National Bank of Rwanda. 

The business profit is increased by the entire amount recovered from bad debts deducted from such reserves.

If the computation of business profit results in a loss in a tax period, the loss may be deducted from the business profit in the next five (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 five (5) tax periods if he or she fulfils the requirements. 

A Ministerial Order determines the requirements to carry forward the loss for more than five (5) tax periods. 

During a tax period, foreign sourced losses cannot be deducted from either present or future domestic sourced business profits. 

If during a tax period, 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 twenty-five per cent (25%) by value or by number, provisions of Paragraph One of this Article cease to apply to losses incurred by that company in the tax period and previous tax periods.

However, the right to loss carried forward applies if the change referred to in Paragraph 5 of this Article 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 three (3) years.

Related persons involved in controlled transactions must have documents justifying that their prices and profits are applied according to arm’s length principle. 

If such persons do not provide documents or the documents provided do not justify that the price and the profit are applied in accordance with the arm’s length principle, the tax administration adjusts transaction prices or profits in accordance with general rules on transfer pricing.

However, before determining the price arrangement between related persons, 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. 

A Ministerial Order establishes general rules on transfer pricing.

During the current tax period, the taxpayer declares and pays to the account of the Tax Administration before and not later than 30 June, 30 September and 31 December of the year of taxable business activities, a quarterly prepayment tax calculated from tax paid for the previous annual tax period divided by the turnover of the same tax period, times the current quarterly turnover. This amount is reduced by the tax withheld in that quarter, unless the taxable income is not included in the total taxable income.

If the taxpayer uses a tax period that does not coincide with the calendar year, the quarterly prepayments as calculated according to Paragraph One of this Article shall be paid not later than the last day of the sixth month (6), the ninth month (9) and the twelfth (12) month of the tax period of which he or she is allowed. 

If the taxpayer started his or her business activities during the previous tax period, the turnover of the previous annual tax period is calculated from his or her turnover of the current quarter divided by the number of months of the previous annual tax period during which the taxpayer carried on his or her business activities, times twelve (12) months.

Investment income 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 in accordance with provisions of Section 3 of this Chapter.

Without prejudice to the provisions of Paragraph one of Article 19 of this Law, 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.

The tax rate on capital gain is five percent (5%) applicable on the gain.

The capital gain tax on the direct or indirect sale or transfer of shares is withheld by the resident company whose shareholding structure has been modified or shareholders changed by such a sale or transfer. 

The company referred to in Paragraph One of this Article declares and pays the capital gain tax to the tax administration within fifteen (15) days following the month in which the sale or transfer of shares occurred.

Capital gain 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 the collective investment schemes is exempted from capital gain tax.

Financial income includes: 

1° income from loans, debentures or other debt securities; 

2° income from deposits; 

3° income from guarantees; 

4° income from government securities, negotiable securities issued by the Government, securities issued by companies or other persons as well as income from cash negotiable securities.

Dividend income includes income from shares in any societies, other similar income that may be generated by all entities that pay corporate income tax, as well as the outstanding balance after the taxation of income from the correction made by the Tax Administration in the transfer pricing.

Royalty income includes all payments of any kind received or receivable: 

1° on the use of or the right to use any copyright of literary, craftsmanship or scientific work including cinematograph films, films or tapes used for radio or television broadcasting; 

2° on the use, right to use or exploitation of a trademark or a tradename, a design or a model, a computer application, a software and a patent; 

3° as the price or consideration of using, or of the right to use industrial, commercial or scientific equipment or for using information concerning industrial, commercial or scientific knowledge or formula; 

4° on the right to exploit or explore natural resource.

All revenues derived from rent of machinery and other equipment including agriculture and livestock equipment in Rwanda, are included in taxable income, reduced by: 

1° ten percent (10%) of gross revenue as deemed expense; 

2° interest paid on loans; 

3° depreciation expenses calculated as provided for by Article 27 of this Law.

Corporate income tax is levied on business profits received by taxpayers other than individuals.

The following taxpayers are subject to corporate income tax: 

1° a company established in accordance with Rwandan law and a foreign company registered in Rwanda; 

2° a cooperative society; 

3° a State-owned company; 

4° trustee, enforcer or protector of a trust;

5° a foundation; 

6° 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; 

7° a non-resident in Rwanda person with a permanent establishment; 

8° an entity established by a District or the City of Kigali if that entity performs an income generating activity; 

9° an association or entity that is established to realise profits regardless of its nature. 

Taxpayers mentioned under Items 1°, 2° and 3° of Paragraph One of this Article are considered as if they conduct business with their whole equity and all their revenues are received from their business activities.

The following are exempted from corporate income tax: 

1° the Government of Rwanda; 

2° the City of Kigali ; 

3° the district 

4° the National Bank of Rwanda; 

5° 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; 

6° 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; 

7° qualified pension funds; 

8° public institution in charge of social security; 

9° Development Bank of Rwanda;

10° Agaciro Development Fund Corporate Trust; 

11°Business Development Fund limited, “BDF Ltd”; 

12° special purpose vehicle, unless the revenue received exceeds the corresponding expenses; 

13° common benefit foundations; 

14° resident trustee for income earned by a foreign trust.

However, persons exempted from corporate income tax are required to submit to the tax administration their financial statements not later than 31st March following the tax period or three (3) months following specific tax period granted to taxpayers who have made an application in accordance with provisions of Article 8 of this Law.

Deposit-taking Microfinance institutions approved by competent authorities pay corporate income tax at the rate of zero percent (0%) for a period of five (5) years from the time of their approval. 

However, this period may be renewed where such entities fulfil the required conditions. 

A ministerial order determines conditions for extending the duration for deposit-taking Microfinance institutions to pay corporate income tax at the rate of zero percent (0%). 

Entities referred to in Paragraph one of this Article are required to submit to the Tax Administration their financial statements not later than 31 March following the tax period or three (3) months following a specific tax period granted to taxpayers who have made an application in accordance with provisions of Article 8 of this Law.

Resident entities are liable to corporate income tax on business profit per tax period whether from domestic or foreign operations.

However, dividends paid between resident companies and unrealised foreign exchange gains on outstanding loan are excluded from corporate taxable income. 

Non-resident entities are liable to corporate income tax on business profit per tax period which is equivalent to the income tax applicable to resident entities through their permanent establishments in the country.

Taxable Business profit is rounded down to the nearest one thousand Rwandan Francs (FRW 1.000) and taxable at a rate of thirty percent (30%). 

However, a newly listed company on capital market is taxed for a period of five (5) years starting from the date of listing on the following rates: 

1° twenty percent (20%) if that company sells at least forty percent (40%) of its shares to the public;

2° twenty five percent (25%) if that company sells at least thirty percent (30%) of its shares to the public; 

3° twenty eight percent (28%) if that company sells at least twenty percent (20%) of its shares to the public.