Business Starter Pack

General Advice

Overview
Due diligence
Adding shareholders
Sector-specific incenctives
Repatriation of captital
Investor certificates
Emvironment Impact Assessment (EIA)
Capital Gains Tax(CGT)

Overview

Rwanda has demonstrated a strong commitment to enhancing its business environment, solidifying its position as a leading investment destination in Africa. The country excels in operational efficiency, ranking third globally in company registration speed, which stands in stark contrast to global averages. Rwanda's digitization of public services, including innovative systems for the judiciary and land services, has significantly streamlined processes, reducing costs and time for businesses.

Legal reforms, such as the Investment Promotion Law and the Insolvency Law, have created a more business-friendly regulatory environment. Additionally, Rwanda is committed to environmental sustainability, incorporating green initiatives like e-mobility and renewable energy into its business practices.

The success of Rwanda's business environment is attributed to a long-term reform strategy initiated in 2008 with the creation of the Rwanda Development Board (RDB). This strategy focuses on administrative, legal, and digital reforms that attract foreign direct investment and drive economic growth. As Rwanda continues to prioritize good governance, macroeconomic stability, and anti-corruption measures, it aims to further enhance its investment climate and foster private sector growth.

Moving forward, Rwanda plans to digitize the One Stop Center and improve business registration systems to maintain its momentum in creating a conducive environment for businesses.

Overseas investors are particularly welcome to participate in the continued growth of the Rwandan economy. As such foreign investors are offered the same opportunities and services as local investors.

Rwanda has a wide range of investment opportunities to offer. There is a focus on key priority sectors including:

infrastructure,
agriculture,
energy,
tourism,
business services,
ICT,
real estate and construction,
Financial Services,
Mining,
Education,
Health,
and General Manufacturing

Due Diligence

As with any country due diligence before any investment is paramount. From assessing the market opportunities to performing background checks on the entrepreneurs.

Here, accessing the right kind of information about a business can be very tricky. The reason is that market and business data are just not readily available and often require a lot of legwork to uncover. Usually, this will take coming here and doing research on the ground to check the validity of some of the statements made by the entrepreneurs etc.

EBCR can be really helpful for this kind of thing because members know the markets quite well and can address the validity or the even normality concerns of new potential investors. (Case Study → East Africa Investments)

Adding Shareholders

In Rwanda, the law says that when adding a new shareholder to a company, then all shareholders, past and new, need to sign a new document altogether.

So, if there currently are 10 investors in a company and you want to add one more investor to your current group of investors. Then, all 11 of those shareholders have to physically come on the same day and at the same time in front of the same notary to sign the document that agrees to sell the shares to this new investor… This is highly impractical.

So far, our main way around it has been to effectively give the power to one or two of the larger shareholders, which allows them to sign on behalf of all of the investors. This, of course, can be problematic because you are effectively putting a lot of trust in those one or two individual shareholders. (Case Study → East Africa Investments)

Sector-specific incentives

Investors that hold Investment Certificates and who have specific investment projects in priority economic sectors can apply for incentives. These incentives are mostly tax-related but can also be of non-tax nature.

The New Investment Law of 2021 defines which are the priority economic sectors that benefit from investment incentives:

Priority Economic Sectors

export;
manufacturing in the textiles and apparel, electronics, information communication and technology equipment, large scale agricultural operations excluding coffee and tea, pharmaceuticals, processing in wood, glass and ceramics, processing and value addition in mining, agricultural equipment and other related industries that fall in these categories;
energy generation, transmission and distribution;
information and communication technologies, business process outsourcing and financial services;
mining activities relating to mineral exploration;
transport, logistics and electric mobility;
construction or operations of specialised innovation parks or specialised industrial parks;
affordable housing;
tourism that includes hotels, adventure tourism and agro-tourism;
horticulture and cultivation of other high-value plants included on the list approved by the Board;
creative arts in the subsector of the film industry;
skills development in areas where the country has limited skills and capacity as determined by the Board.

IncentivesThe incentives include preferential tax rates on Corporate Income Tax, Withholding tax, Capital Gains Tax as well as exemptions from Customs Tax, and some other non-tax incentives as well. The full list of incentives including qualifying conditions can be found in the Annex (page 80) of The New Investment Law of 2021

Repatriation of capital

The political, geopolitical, and economic stability alongside the low levels of corruption makes Rwanda one of the safest places to place your money in Africa. Bringing money in and out of the country is not a problem for foreigners or Rwandans alike. The law explicitly protects investors and their capital:

⚖️ Upon fulfilling tax obligations in Rwanda, an investor is allowed to repatriate the following: the capital; profits derived from business activities; debt and interest on foreign loans; proceeds from the liquidation of investment; other assets of an investor. (Investment Law, 2021)

Investor Cerificate

After business registration, businesses that ‘add value’ (i.e. investors rather than traders) can apply for an Investor Certificate.
SMEs tend to think that the application process is complex and that the certificate is intended for large businesses. On the contrary, RDB strongly believes all foreign investors can benefit from the certificate when facing challenges.
Investment certificates are not mandatory but confer two main advantages:

The certificate unlocks services of the RDB One-Stop-Centre and results in the assignment of an account manager. That way, if/when facing adversity, businesses can go back to their assigned account manager for assistance. (TRAIDE – Investing in Rwanda Report, 2019)
Furthermore, to benefit from investment incentives (including tax cuts) investors must first be registered by obtaining an investment certificate issued by the Rwanda Development Board (RDB).

RDB’s One Stop Centre for investment facilitation has introduced an online registration system to make the process more efficient and cheaper for the applicant. The process involves submitting an application for an investment certificate online via the One-Stop Centre portal, after having paid the application fee (USD 500; approx. 420 EUR)
It takes **** a maximum of 2 working days for an investor to obtain their investment certificate once all required documents are completed.

⚖️ Find the full process breakdown(here)

⚠️ Before applying for an investment certificate businesses are strongly advised to consult the RDB aftercare department on the eligibility of their business)as well as their business proposal. In this way, the number of ‘rejected’ applications can be minimised.

Please also note that the Investor Certificate will not result in ‘legal obligations, but there may be consequences. For example, businesses have reported it was difficult to get an extension of one’s resident permit when certain objectives listed in the submitted business plan were not realised. (TRAIDE – Investing in Rwanda Report, 2019)

Environment Impact Assessment (EIA)

Environmental Impact Assessment (EIA) is mandatory for the approval of major development projects in the Republic of Rwanda. Before commencing the implementation of their projects, investors are required to cross-check whether their projects must undergo an EIA.
A team of environmental analysts at Rwanda Development Board (RDB) can assist investors in this verification and in the obtention of the EIA if the latter is deemed necessary before project implementation can begin.

Capital Gains Tax(CGT)

☝ Capital gains tax is charged on the direct or indirect sale or transfer of shares or debentures. The capital gains tax is charged at the rate of 5% of the capital gain. The capital gain on sale or transfer of shares is determined as the difference between the acquisition value of the shares and their selling or transfer price.PWC

There is a particularity in Rwanda when you sell your shares in a business in terms of paying Capital Gains Tax (CGT): The CGT is not paid by the selling or the purchasing party, but by the actual business entity being sold. For more details please see the Case Study → East Africa Investments

East Africa Investment

Would you recommend performing due diligence before investing in a company in Rwanda?
#investing
When looking to invest in a business any investor anywhere in the world should do some due diligence.

In the UK you can generally Google the company or find them in some sort of business database. Here, accessing the right kind of information about a business can be very tricky. The reason is that market and business data are just not readily available and often require a lot of legwork to uncover. Usually, this will take coming here and doing research on the ground to check the validity of some of the statements made by the entrepreneurs etc.
EBCR can be really helpful for this kind of thing because members know the markets quite well and can address the validity or the even normality concerns of new potential investors.
How do you move funds from the UK company to Rwanda?
#investing
At the moment I just have a personal bank account in my name, and I literally just hold the funds on behalf of the UK company.
Rwanda Finance is aware of this kind of practice which is why they have been pushing for these new investment codes because at the moment this is not necessarily a good environment for investors.
What other costs are associated with you bringing money into the country?
#investing

It’s really easy to bring money into the country. We usually do a transfer with TransferWise (now called Wise) from the UK account to the Rwandan entrepreneur’s business account.
Apart from the usual bank fees, there are no other extra charges. Generally speaking, there are no regulations prohibiting you from bringing money into the country.
What about taking money out of the country?
#investing
As investors, when we want to cash in some of the returns from our investments here, we simply have to pay Capital Gains Tax (CGT).
[…]
What is Capital Gains Tax (CGT) ?
#investing
#tax

There is a particularity in Rwanda when you sell your shares in a business in terms of paying CGT. The Capital Gains Tax is not paid by the selling or the purchasing party, but by the actual business entity being sold.

Let me give you an example to make it clear: Let’s say I buy 10 shares in ABC.inc. and I hold the shares for 5 years, during which time ABC.inc makes 1 million dollars in revenue, which is fantastic. Then, after those 5 years, as the entrepreneur has made some money they want to buy the shares back from the investor.

In theory, this transaction has nothing to do with ABC.inc. It’s just a transaction between two private individuals. But here, the law states that the company (i.e. ABC.inc) is the one that has to pay Capital Gains Tax to the Rwanda Revenue Authority (RRA).

East African Investments Ltd. faced this exact scenario when selling some of our shares in one of our companies back to the founders. The main challenge then was that the founders themselves were not particularly well informed in terms of corporate finance law. So, we went to find the truth at the source: the RRA. But unfortunately, nobody at the RRA understood either!

So, I called PWC and they confirmed that it was indeed the business entity that had to pay CGT I called our private accountant and she confirmed that as well.

So in the end, we managed to convince the founders that even though they were the ones buying the shares from us it was the businesses that had to pay CGT, and so they did it.

CGT is 5% of the price of the sale. So, we agreed that they would pay us 95% of the agreed price and they would “give” 5% to the business which would then go to pay the CGT to the Rwanda Revenue Authority.

So, in essence, EAI paid the CGT, which makes sense since it’s EAI that made the profit.
We know that this particularity about the company having to pay the CGT has been raised as an issue by a number of accountants to the RRA and Government, but changes haven’t been implemented yet.
[…]

How do you add a shareholder to a company?
#investing
In Rwanda, the law says that when adding a new shareholder to a company, then all shareholders, past and new, need to sign a new document altogether.

So, if there currently are 10 investors in a company and you want to add one more investor to your current group of investors. Then, all 11 of those shareholders have to physically come on the same day and at the same time from the of the same notary to sign the document that agrees to sell the shares to this new investor. This is highly impractical.

So far our main way around it has been to effectively give the power to one or two of the larger shareholders, which allows them to sign on behalf of all of the investors. This, of course, can be problematic because you are effectively putting a lot of trust in those one or two individual shareholders.

BAG Innovation

Would you recommend prospective start-up entrepreneurs to come here with some initial capital? How much?
#investing #startingStrategy
For us, as a tech company offering services right from the onset, we managed to make a little revenue very quickly. But it wouldn’t have worked if I demanded a salary to cover all my costs.

If you’re coming as a foreigner, you have to be able to survive from 6 months to a year at least without getting a salary. Essentially to cover your own living costs. Then, depending on the industry, you might have to make some small initial investments too.

I would definitely recommend bringing some capital. And it doesn’t require much: if you come with USD 10 to 20 thousand you can start pretty much anything.

Where did you find investments? Was it foreign or Rwandan investment?
#investing
It was a mix. We had one convertible dept of around USD 100,000 from a local tech company that agreed to develop the initial four phases of the platform. That was a cheap way to build the technology – which was our biggest cost.
Then we got grants. Competitive grants where we competed against other start-ups. We got anything from USD 500 to USD 10,000.
Then there were some private investments from my side as well. But we haven’t given away any private equity yet.
Have you ever considered getting a holding company abroad to facilitate foreign investments?

#investing #startingStrategy
I’ve considered starting up in Sweden several times.
What most people do is that they open a for-profit here and then they open a non-profit in their home country. And then they’ll use the non-profit to sell the “social impact” and get money into their organisation.
So, if you’re a fintech, you don’t say that you “make money by providing financial solutions”, but that “you empower people with finance”. And like that, you might get 100K from a government or an investor in your country. You then use that money to pay your local company as a “consultant”. (Again, this is coming back to the dysfunctional business model.)

On our end, we work with youth empowerment, youth development, employability etc. We’re “ticking all the right boxes” for social investment. That’s why we haven’t done any proper raising, Because if we wanted 100K we’d have to give away 30-40% of the business and we’re not interested in that.
[…]
What would be the best channels to find private investment for a company in Rwanda?
#investing
There are no official channels for finding investors in Rwanda. It’s all just networking. That’s partly why people are in networks like EBCR because there might be one person who has an investor in their home country interested in let’s say ed-tech and therefore they will connect them to us since we’re in ed-tech.
The best way to find a potential investor is to find someone who has an interest, so it’s always connected to their network – usually from abroad.
The investment scene is getting better here, and governments, privates, and VCs have started opening up here since this year.
That’s because in the past 5 years everyone’s said that their biggest problem is access to finance. So, this time next year, I don’t think [access to finance] would be as big a problem as it is now.
For me personally, the best place to find private investors is definitely back home, through my network in Sweden. Going into the private owners, the private networks, and the private impact investors who are willing to take 2% equity.
Again, that’s the advantage of coming from abroad. For us finding USD 50,000 could be very easy. But for a Rwandan entrepreneur, it’s almost unthinkable.

OX Rwanda

What is the corporate relationship between the UK and the Rwandan parts of OX?
#registration #importExport
OX Rwanda is 100% owned by the UK holding company. We will continue this model for the other countries too i.e. OX Uganda, OX Kenya etc. (Unless we enter into joint ventures in those countries of course.)
#investing

So our investors actually invest in the UK holding company and the holding company has given a couple of shareholder loans to OX Rwanda. This seem to be the most efficient way to get your money back as a foreign investor.

General Advice

Contents

Overview

East Africa Investment

BAG Innovation

OX Rwanda