The taxation system of Rwanda is divided into two categories, namely: Domestic Taxes and Custom Taxes.               
Domestic taxes are taxes that are levied on economic activities, goods, services, or income generated within a country’s borders while Custom taxes are taxes imposed on goods when they are imported into or exported out of a country.           

Domestic taxes are further divided into Centralized taxes and Decentralized taxes.              
Centralized taxes are levied and collected by the Rwanda Revenue Authority (RRA). These taxes include: Personal income tax, Corporate Income tax, Value Added tax, Pay as you earn, Excise duty, and Withholding tax. Rwanda Revenue Authority also collects social security contributions, though they are not taxes, on behalf of Rwanda Social Security Board (RSSB). Decentralized taxes are levied and collected at district level, hence the common name “District taxes.” They include the trading license, Immovable property tax, and rental income tax.          

Below is a detailed breakdown of each tax under the decentralized category:           

1. Domestic Decentralized Taxes/District Taxes           

Decentralized taxes are levied and collected at district level, hence the common name “District taxes.” They include the trading license, Immovable property tax, rental income tax, and market fees           

1.1. Trading License Tax               
A trading license tax is imposed on all businesses operating in Rwanda. It is paid to the district in which the business activity takes place.           

The trading license is calculated based on the turnover of the previous year:             

• Between RWF 2 million and RWF 7 million: RWF 100,000 annually/25,000 quarterly.             
• Between RWF 7 million and RWF 12 million: RWF 120,000 annually/30,000 quarterly.             
• Between RWF 12 million and RWF 20 million: RWF 160,000 annually/40,000 quarterly.             
• Between RWF 20 million and RWF 200 million: RWF 280,000 annually/70,000 quarterly.             
• Between RWF 200 million and RWF 1,000 million: RWF 500,000 annually/125,000 quarterly.             
• Between RWF 1,000 million and RWF 25,000 million: RWF 500,000 annually/125,000 quarterly.             
• Between RWF 25,000 million and RWF 50,000 million: RWF 1,500,000 annually/375,000 quarterly.             
• RWF 50,000 million and Above: RWF 2,000,000 annually/500,000 quarterly.           

For other business oriented activities which are not registered on income tax, the trading license is determined based on the location (urban or rural) as illustrated below:             

• Profit-oriented activities not registered on income tax, in urban zones: RWF 60,000 annually/15,000 quarterly.             
• Profit-oriented activities not registered on income tax, in rural zones: RWF 30,000 annually/7,500 quarterly.             
• Non-commercial public institutions, as well as micro-enterprises and small businesses, are exempt from paying the trading license tax for the first two years following their establishment.           

Trading License Tax Period                                                                                                    

The tax period for the trading license starts on January 1st and ends on December 31st.            

Date of declaration    

The tax declaration is made not later than 31 January of the year that corresponds to the tax period.           

NOTE:              
If taxable trading activities start after January, the taxpayer pays trading license tax equivalent to the remaining months of the year including the one in which the activities started.              
For the taxpayers conducting seasonal or periodic trading activities, the trading license tax is paid for a whole year, even though the taxable trading activities do not occur throughout the whole year.              
Newly registered businesses start paying for the trading license after two years in operation.           

Trading license tax declaration for the head office and operating branches           

• A taxpayer with a head office and branches in different districts must declare and pay the trading license tax separately for both the head office and each branch.           
• If a branch cannot determine its turnover, the trading license tax for that branch is based on the turnover of the head office.           
• When all branches are in the same district as the head office, the taxpayer only pays the tax based on the head office's turnover. If branches are in different districts, the tax is calculated using the turnover of the branch with the highest earnings.           

Trading license tax declaration basing on different business activities           

• A taxpayer conducting different business activities in separate buildings must file a trading license tax declaration for each activity. However, if multiple activities are conducted by the same person in the same building, they are subject to a single trading license tax, calculated based on the combined turnover of all activities.           
• Vehicles registered under a taxpayer's name and used in their business are not separately taxed for the trading license. The taxpayer pays the license tax according to the law's general provisions.           
• For transport businesses, companies using vehicles must pay the trading license tax based on the turnover of each office in different districts. Individuals, on the other hand, pay according to the rates provided in the annex of the law.           

Trading license tax declaration for business in more than one district    

In case a business activity is spread across more than one district, the taxpayer files his/her declaration of trade license tax in each district where he/she operates.           

Refunding of trading license tax          

In case the taxpayer terminates or changes his/her business activities during a tax year, he/she is, after an audit, refunded the paid trading license tax depending on the remaining months until 31st December of the tax period.           

1.2. Immovable property tax     

The immovable property tax is assessed and paid by the owner, usufructuary, or anyone considered to be the owner. If the owner lives abroad, a proxy in Rwanda must handle the tax obligations. The tax responsibility does not end if the owner disappears without appointing someone to manage the property.           

The immovable property tax is based on the market value of the building and the related plot, land surface intended for construction without buildings, land not designated for residential use, and land with tax-exempt buildings. For properties with both buildings and land, the tax applies to both if they are subject to taxation.           

Immovable Property Tax Rates           

Tax rates are determined as follows:           

0 to RWF 80 per square meter for land surface              
0.5% of market value for residential properties              
0.3% for commercial properties              
0.1% for industrial use, micro-enterprises, and small businesses           

Special rates apply to residential buildings with three or more floors:           

A plot and a building for residential use of three floors are taxed at the rate of 0.25% of their market value;              
A plot and a building for residential use with more than three floors are taxed at the rate of 0.1% of their market value;           

Exemptions from Immovable Property Tax              
Several properties are exempt, including a primary residence and its annexes, properties owned by vulnerable persons, state-owned properties not used for profit, foreign diplomatic missions, agricultural land up to two hectares, and undeveloped land meant for residential use. Condominiums also enjoy exemptions for family dwellings.              
In determining the taxable value of a commercial or industrial building, machinery and other equipment attached to the building are not considered.           

Declaration Time              
The taxpayer must declare the immovable property tax by December 31 of the first tax period and every five years thereafter. The tax must also be paid by December 31 each year for five consecutive tax periods, unless revised by the tax administration.           

NOTE:              
Tax values annually depending on the variation in the market value of the property and revenue generated              
It’s based on ownership. Commercial properties don’t pay similar, depends on business size and value           

1.3. Rental Income Tax           

The rental income tax is paid by any individual who earns income from renting out the fixed assets located in Rwanda, including land, buildings and improvements.           

• Zero percent (0 %) for an annual rental income from one Rwandan franc (FRW 1) to one hundred eighty thousand Rwandan francs (FRW 180,000);           
• Twenty percent (20 %) for an annual rental income from one hundred eighty thousand and one Rwandan francs (FRW 180,001) to one million Rwandan francs (FRW 1,000,000);           
• Thirty percent (30 %) for an annual rental income above one million Rwandan francs (FRW 1,000,000).              
  Rental Income Tax Computation           

Taxable rental income is calculated by deducting 50% from the gross rental income to account for maintenance and upkeep expenses. If a taxpayer can provide proof of bank interest payments on a loan for the property, the taxable income is adjusted by deducting the 50% maintenance expenses plus the actual interest paid.           

Tax Declaration and Payment              
Taxpayers must file their rental income tax declaration by January 31 each year, detailing rented immovable property and the tax due. Payment of the self-assessed tax is also due by January 31.           

Appeal Process              
Taxpayers dissatisfied with their tax assessment may file an objection within 30 days. The concerned authority has 60 days to respond, and if unsatisfied, the taxpayer can appeal to the competent court. Winning a case results in a refund of overpaid tax within one month. However, appeals do not suspend tax obligations. Any changes to the rental contract must be reported within 30 days.           

Now you have a comprehensive understanding of Rwanda's taxation system. You can stay on the right side of the law to confidently avoid fines, penalties, and any issues that may arise from non-compliance. Stay informed, stay compliant, and contribute to the country's growth through responsible tax practices.        

    If you need to understand centralized taxes, please check the article below:           https://www.newtimes.co.rw/article/21093/opinions/understanding-centralised-taxes-in-rwanda           

To understand custom duty taxes, please check the article below:

https://blog.kudibooks.com/custom-duty-taxes-in-rwanda-taxes-on-imports-exports

             
Prepared By:         

Liliane Gikundiro,