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Rwanda’s strategic location offers the opportunity of a commercial hub to the East and Central African regions. Its economy is still new, both in terms of industrialization, foreign investor participation and commercial engagement. Thus immense opportunities still exist across all sectors and are complemented by an attractive investment climate with low inflation, zero tolerance to corruption and remarkable peace and security. The international community including the World Bank has rated Rwanda as one of Africa’s top performers in terms of good governance. Rwanda has gained international repute as one that is serious and committed to economic growth and development.
However there are a number of issues which you must consider when you are looking to set up your business in Rwanda. This document takes you through some of the common questions we come across and gives you practical information about the issues you need to consider.
What type of Business Structure should we use?
There are advantages and disadvantages to all of them, and there is no one correct answer, it’s all dependent on your specific business circumstances and needs. A brief overview of the main structures is below:
Establishment (a branch of your overseas business)
- A separate legal entity
- Limited liability and ring-fencing of the Rwanda operations
- Profits of Rwanda operations of a branch are liable to Rwanda Corporation tax
- Must file the entity’s accounts with the Registrar of companies in Rwanda.
- Accounts require auditing if Revenues are above Rwandese Francs 400 million (about Usd 500,000) or the entity is categorized as a large tax payer
- Provides limited liability and ring-fencing to Rwanda operations
- Gives a perception of a local business, with longevity
- Corporation tax to be paid on company profits
- Must file the company’s accounts with the Registrar of Companies in Rwanda
- Accounts require auditing if Revenues are above Rwandese Francs 400 million (about Usd 500,000) or the company is categorized as a large tax payer.
Limited Liability Partnership:
- Rwanda does not have a partnership law
How much Corporation Tax will the business pay?
Current Corporation Tax rates in Rwanda are:
|Annual Turnover Rwandese Francs||Tax Payable Rwandese Francs|
|2,000,000 to 4,000,000||60,000|
|4,000,001 to 7,000,000||120,000|
|7,000,001 to 10,000,000||210,000|
|10,000,001 to 12,000,000||300,000|
|12,000,001 to 50,000,000||3% of turnover|
|Above 50,000,000||30% of net profit|
(NB: rates are for the tax year to 2017)
Companies listed on Rwanda stock exchange also enjoy tax discount depending on the percentage of shares issued to the public.
The corporation tax rate changes to 15% if a company exports at least 50% of turnover.
What if we use Rwanda to set up our holding company?
Rwanda’s tax legislation means that it is a very attractive place to set up a holding company. If a company sets up Rwanda as the head office of a holding company, then the holding company will be exempted from corporation tax.
If a Rwandan company holds shares in another local company and these shares are subsequently sold, the resulting gain is exempt from taxes, this only applies where the selling company is quoted in the stock market. If the company in which the Rwandan company holds shares is foreign, a withholding tax of 15% is charged.
Dividends received by a Rwandan parent company from a Rwandan company are exempt from tax while those that are received from foreign companies are taxable. However, a tax relief is granted for the taxes charged on dividends in the countries of origin.
Rwanda does not charge tax on intercompany dividends as long as both companies are based in Rwanda.
What if we make cross-border transactions between group companies?
Rwanda follows internationally recognised Transfer Pricing (TP) rules where cross-border trading and financial transactions between affiliated entities have to be conducted on an arm’s length basis. The price and terms should be the same as if the transactions had been between completely independent parties.
Typical transactions between affiliated entities that are covered by TP regulations are:
- Sale and purchase of goods
- Provision of management services
- Property rental charges
- Transfer of intangible assets e.g. trademarks, patents
- Sharing of knowledge, expertise, business contacts etc.
- Provision of financial support e.g. inter-group loans and charging a “market” interest on loans
A business will need to prepare a Transfer Pricing Report proving the arm’s length basis of transactions. The report will include a functional and risk analysis, analysis of the adopted pricing model and benchmarking of the arm’s length basis.
For prudence, a taxpayer who is planning to make a transaction that has transfer price implications may ask for a ruling in which the Tax Administration agrees on a fixed transfer price or profit margin to be used. This ruling is issued by the Commissioner General.