Kigali GMT
EY Street address: Mail address: 6th Floor, M. Peace Plaza BP 3638 Avenue de la Paix Rwanda Kigali Rwanda
Indirect tax contacts
Francis N. Kamau +254 736 701851 +254 20 2886000 francis.kamau@ke.ey.com
Hadijah Nannyomo +254 729 847195 +254 20 2886000 hadijah.nannyomo@ke.ey.com
Michael M. Ichura +250 788 303322 +250 788 309977 michael.m.ichura@rw.ey.com
Timothy N. Muriuki +250 786 491167 +250 788 309977 timothy.n.muriuki@rw.ey.com
A. At a glance
Name of the tax Value-added tax (VAT)
Local name Value-added tax (VAT)
Date introduced 1 January 2001
Trading bloc membership Common Market for Eastern and Southern Africa (COMESA) East African Community (EAC) African Continental Free Trade Area (AfCFTA)
Administered by Rwanda Revenue Authority (www.rra.gov.rw)
VAT rates
Standard 18%
Other
Zero-rated (0%) and exempt
VAT number format Tax identification number (TIN) - 000111111
VAT return periods Monthly or quarterly Thresholds
Registration RWF20 million (in 12 months) or RWF5 million (in a quarter)
Recovery of VAT by non-established businesses No
B. Scope of the tax
VAT applies to the following transactions:
• The supply of goods and services in Rwanda by a taxable person
• Imported services received by a taxable person in Rwanda
• The importation of goods from outside Rwanda, regardless of the status of the importer (unless the import qualifies for VAT waiver under the investment code, or the importer has been granted a VAT exemption)
The exportation of goods and taxable services is zero-rated if, subject to the satisfaction of the tax administration, the export has taken place and evidence exists that the export proceeds will be repatriated into Rwanda.
C. Who is liable
The consumers of taxable goods and services pay VAT. Registered taxable persons (traders), which act as the agents of the government, collect VAT. The Customs Services Department collects VAT on imported goods, while the Domestic Taxes Department collects local VAT and VAT on imported services.
A VAT registration is dependent on the attainment of a turnover threshold of RWF20 million in 12 months or RWF5 million in a quarter. Businesses that do not attain this turnover threshold may voluntarily register.
Exemption from registration. The VAT law in Rwanda does not contain any provision for exemption from registration.
Voluntary registration and small businesses. It is possible for a taxable business that is not required to register for VAT to register on a voluntary basis. The taxable person wishing to register volun tarily for VAT must apply to the Commissioner General in writing stating the reasons for which they want to register for VAT. The Commissioner General, if satisfied with the reasons given for the application, will grant permission in writing for such a taxable person to be registered for VAT.
Group registration. Group VAT registration is not allowed in Rwanda.
Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Rwanda. A foreign business is not required to register for VAT unless it has a permanent establishment in Rwanda. A permanent establishment of a foreign business must register for VAT if it makes taxable supplies of goods or services. Other non-established busi nesses are not required to register for VAT. Instead, a person importing goods or services from a nonresident must pay the Rwandan VAT due.
Tax representatives. Any person allowed by law to represent a taxable person shall file the tax declarations, pay taxes due and comply with all the obligations required under law.
Any person in one of the five following categories must, upon appointment as a tax representative, communicate its new capacity to the tax administration within a period of seven days:
• The guardian or any other person responsible for custody of a minor or an incapacitated person
• A legal or judicial administrator of an estate or of a will or the heirs of such an estate
• The president, accountant or director appointed or any other representative of a company or any other legal person
• The administrator or the representative of a company or any other legal person in liquidation
• Any other person given the mandate to represent the taxable person
Also, the tax representative could be:
• The owner of an enterprise
• A partner in a partnership that has unlimited liability
Reverse charge. Imported services are subject to VAT at the standard rate of 18%. If the service in question is not locally available in Rwanda, the importer of the service is allowed to account for VAT using the reverse-charge method, that is, by including it in both output and input tax, thereby having a nil net cash flow.
Domestic reverse charge. There are no domestic reverse charges in Rwanda.
Digital economy. There are no specific provisions in the Rwandan VAT law for the taxation of the digital economy. A nonresident business is not required to register for VAT unless it has a per manent establishment in Rwanda. Instead, the customer importing goods or services from a nonresident must pay the Rwandan VAT due.
Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in Rwanda.
Registration procedures. Any person who sets up a business or carries out noncommercial activities, but who is subject to tax, has the responsibility to register with the tax administration within seven days from the beginning of the business or activity or the establishment of the company.
Any person who carries out taxable activities exceeding RWF20 million in the previous fiscal year, or RWF5 million in the preceding calendar quarter, is required to register for VAT within seven days from the end of the year or quarter.
Any person may voluntarily register with the tax administration for VAT. Any changes, whether related to the taxable person or its activities shall be reported in writing to the tax administration within seven days from the day of the notice of the change. Taxable persons must register by submitting the application in hard copy for individual taxable persons and online for non-individual taxable persons.
Individual entrepreneurs register in their own names using the Individual Enterprise Registration Form and a copy of their national ID or passport. Organizations or enterprises register using the RDB online registration platform in the name of the organization. Individual taxable persons conclude their registration by completing the appropriate registration form, signing and submitting it to the tax administration and by obtaining a tax identification number (TIN). Nonindividual taxable persons conclude their registration by submitting an online registration request and obtaining a TIN from the Rwanda Development Board (RDB).
Deregistration. A taxable person ceases to be liable to a particular type of tax at any time when the Commissioner General is satisfied that any one of the following circumstances is true:
• The taxable person has ceased its business or economic activity completely
• The taxable person has reduced the volume of its activities to a level that it is not liable to that particular tax
• The taxable person has paid all taxes due to the tax administration
Any registered taxable person ceasing to be liable for a tax notifies the tax administration using a modified registration form within a period of seven days from the date it is no longer required to be registered.
When the tax administration is satisfied that a person is no longer liable to be registered, it can cels the registration. Granting cancellation of registration does not stop the tax administration from carrying out audits.
Changes to VAT registration details. Any changes related to a taxable person or their activities is notified in writing to the tax administration within seven days from the notice of the change.
A taxable person who changes address (physical and electronic) must notify the tax administra tion. Whenever a taxable person changes their address without notifying the tax administration, all their information is delivered to their last known address.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 18%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero-rate or an exemption.
Examples of goods and services taxable at 0%
• Exports of goods
• Exports of taxable services
• Goods and services supplied to diplomatic and consular missions
• Services rendered to a tourist for which value added tax has been paid
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Unprocessed agricultural products
• Financial services
• Educational services
• Medical services
• Agricultural, animal husbandry and horticultural services
• Transportation of passengers (excluding for hire)
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Rwanda.
E. Time of supply
The time when VAT becomes due is called the “time of supply” or “tax point.” In Rwanda, the tax point is the earliest of the following events:
• The goods or services are supplied
• An invoice is issued
• Payment is received for all or part of the supply
• Date on which goods are either removed from the supplier’s premises or given to the recipient
Deposits and prepayments. There are no special time of supply rules in Rwanda for deposits and prepayments. As such, the general time of supply rules apply (as outlined above). However, in practice in relation to construction contracts, advance payments do not qualify as taxable sup plies.
Continuous supplies of services. There are no special time of supply rules in Rwanda for supplies of continuous supplies of services. As such, the general time of supply rules apply (as outlined above). Therefore, for supplies of goods and services that are provided against periodic payments (e.g., where there is a monthly billing for an ongoing service), each such installment constitutes a taxable supply for VAT purposes.
Goods sent on approval for sale or return. There are no special time of supply rules in Rwanda for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. There are no special time of supply rules in Rwanda for supplies of reverse-charge services. As such, the general time of supply rules apply (as outlined above). Where the time of supply rule for imported services is the same as for local taxable supplies.
Leased assets. There are no special time of supply rules in Rwanda for leased assets. As such, the general time of supply rules apply (as outlined above).
Imported goods. The time of supply for imported goods is the date on which the goods enter Rwandan territory under the Customs legislation, i.e., at the customs point in accordance with the customs legislation.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. Input tax is claimed by deducting it from output tax, which is VAT charged on supplies made.
Input tax includes VAT charged on goods and services purchased in Rwanda and VAT paid on imports of goods and services.
The time limit for a taxable person to reclaim input tax in Rwanda is the first VAT period after incurring the expense, i.e., within the month in which the invoice is dated.
Nondeductible input tax. VAT may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur). In addition, input tax may not be recovered on certain business expenses/overheads.
The following list provides examples of expenditures for which input tax is not deductible.
Examples of items for which input tax is nondeductible
• Passenger vehicle, or spare parts or repair and maintenance services for such a vehicle
• Business gifts
• Business entertainment
• Fuel for vehicles (apportioned)
• Mobile telephone bills (apportioned)
• Utilities (apportioned)
• Purchase of inventory
• Consultancy services
• Payment of legal fees
Examples of items for which input tax is deductible (if related to a taxable business use)
Partial exemption. VAT directly related to making exempt supplies is not recoverable. A registered person who makes both exempt and taxable supplies cannot recover input tax in full.
Under Rwandan VAT law, if a taxable person supplies both taxable and exempt goods and ser vices, only input tax attributable to taxable supplies may be recovered. The amount of the claim able input tax is determined using a standard method or an attribution method approved by the Commissioner General.
Approval from the tax authorities is not required to use the partial exemption standard method in Rwanda. Special methods are not allowed in Rwanda.
Capital goods. Input tax incurred in respect of capital goods purchased during the tax period is claimable if all goods or services supplied by a taxable person during a tax period are taxable supplies. Where a taxable person supplies both taxable and exempt goods and services, only input tax attributable to taxable supplies may be recovered.
Refunds. A taxable person may claim a refund of input tax in excess of output tax. The claim for a VAT refund can be made within one month after the date on which the tax became payable. Within one month after the date on which a person becomes registered, the person may file a claim for relief from VAT paid on stock held (goods held for trading) before registration.
Pre-registration costs. A newly registered taxable person is allowed to claim input tax credit in respect of goods that were in their store or stock at the close of the last day prior to registration.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., bad debts) cannot be recovered in Rwanda.
Noneconomic activities. Input tax incurred in relation to noneconomic activities is not recover able in Rwanda.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in Rwanda is not recoverable.
H. Invoicing
VAT invoices. A supplier of taxable goods and services must issue a tax invoice to the purchaser at the time of supply.
Credit notes. A credit note may be used to reduce the VAT charged on a supply of goods or ser vices. Credit notes must show the same information as a tax invoice. For a credit note to be valid, it must meet the following conditions:
• Reflect a genuine mistake, overcharge or agreed price reduction
• Be issued within 24 months from the date of original invoice issuance
• Be headed “Credit note”
Electronic invoicing. Electronic invoicing is mandatory for all taxable persons in Rwanda. Electronic invoicing using electronic billing machines (EBMs) supplied by vendors authorized by the tax administration is mandatory for all taxable persons, unless the taxable person in ques tion has a specific exemption granted by the Commissioner General from the use of an EBM. In other words, every commercial invoice issued by a taxable person must invariably be accompa nied by a corresponding EBM receipt generated from the EBM that is directly linked to the RRA IT system. There are prohibitive penalties for non-use or fraudulent use of EBMs by taxable persons.
Simplified VAT invoices. A simplified invoice may be issued instead of a VAT invoice if the sales to any one customer in a day does not exceed a threshold determined by the Commissioner General. Approval by the tax administration is required in order to issue simplified VAT invoices. The application to the tax administration must include information on the nature of the taxable person’s sales, as well as any other details that may be specific to a given industry. Simplified invoicing is not limited to any particular industries. Simplified VAT invoices must contain the date, supplier TIN, VAT amount and total amount charged.
Self-billing. Self-billing is not allowed in Rwanda.
Proof of exports. Goods exported from Rwanda are zero-rated. However, to qualify for zero-rated exports must be supported by evidence that proves the goods left Rwanda. Suitable evidence includes the following documents:
• A sales invoice
• A bill of lading, road manifest or airway bill
• A customs export entry (document issued by Customs as evidence that goods have been cleared to leave Rwanda’s customs territory)
Foreign currency invoices. Foreign currency invoices are handled in the same manner as invoices in the domestic currency, the Rwandan franc (RWF). Foreign denominated invoices are con verted using the prevailing National Bank of Rwanda (BNR) exchange rate as at the invoice date.
Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons in Rwanda. As such, full VAT invoices are required.
Records. A taxable person must maintain books of accounts and records on the following:
• Sales and purchases records
• Record of assets and liabilities
• Records of daily income and expenses related to the business activity
• Records of stock inventory at the end of the accounting period
• Information related to controlled transactions
In Rwanda, VAT books and records must be held within the country, either on the premises of the taxable person or in any other place located in Rwanda.
Record retention period. The statutory period for archiving of accounting and tax records is five years.
Electronic archiving. There are no specific provisions in the Rwandan VAT law on the electronic archiving of records. In practice, the tax administration requests for physical copies of tax records during a tax audit. It is therefore prudent for a taxable person who has an electronic archiving system to also maintain physical copies of the invoices.
I. Returns and payment
Periodic returns. The VAT tax period is either one month or calendar quarter. Returns must be filed by the 15th day after the end of the tax period. If the normal filing date falls on a public holiday or on a weekend, the VAT return must be submitted on the next working day after such day.
Periodic payments. Payment is due in full by the same date as the VAT return submission dead line, i.e., by the 15th day after the end of the tax period. A “nil” return must be filed if no VAT is payable. Tax payment must be made through cash, check or bank transfer. A refund claim return must be filed if input tax exceeds output tax in a given tax period.
Electronic filing. Electronic filing is mandatory in Rwanda for all taxable persons. Taxable per sons are required to upload the relevant annexures and submit the tax declaration online (https:// etax.rra.gov.rw/).
Payments on account. Payments on account are not required in Rwanda.
Special schemes. No special schemes are available in Rwanda.
Annual returns. Annual returns are not required in Rwanda.
Supplementary filings. No supplementary filings are required in Rwanda.
Correcting errors in previous returns. Taxable persons can revise previously submitted declarations at any time. However, such revisions attract penalties and interest if they result in an increase in VAT payable.
Digital tax administration. There are no transactional reporting requirements in Rwanda.
J. Penalties
Penalties for late registration. An administrative fine of 50% of the amount of output tax is assessed for the entire period of operation without VAT registration in the event of late registra tion by businesses that meet the turnover threshold.
Penalties for late payment and filings. Administrative fines for non-declaration and nonpayment of tax are:
• 20% of tax due when the taxable person exceeds the time limit for declaration and payment for a period not exceeding 30 days
• 40% of tax the taxable person should have declared and paid, if they pay within a period rang ing from 31 to 60 days from the time limit for the payment
• 60% of due tax, if the taxable person exceeds the time limit for declaration and payment by more than 60 days
Administrative fines for late payment of tax are:
• 10% of due principal tax, when the taxable person exceeds the time limit for payment for a period not exceeding 30 days from the fixed date of payment
• 20% of the principal tax due, when the taxable person exceeds the time limit for the payment of a period ranging from 31 to 60 days from the fixed date of payment
• 30% of due principal tax, when the taxable person exceeds the time limit for payment by more than 60 days from the fixed date of payment
Interest on late payment of tax is charged at a 1.5% per month, not compounded.
Penalties for errors. The penalties for errors in Rwanda are the same as the penalties for late pay ment of tax (as outlined above).
Penalties for fraud. Penalties for VAT offenses include up to 200% of tax evaded and imprison ment for a term of not less than two years and not more than five years upon conviction.
Personal liability for company officers. Directors who are directly involved in the control and management of a private company are jointly liable for any tax liabilities incurred by the company if it is evident that they intentionally or negligently caused the company to incur the tax liabilities. However, this liability is determined by a court of law. Applicable penalties and interest will be as outlined above.
Statute of limitations. The tax authorities can go back to review returns within five years from 1 January of the following tax period. However, if it is revealed that the taxable person intended to evade tax, the time limit can be extended up to 10 years. There is no time limit for a taxable person to voluntarily correct errors in previous returns.