Joanna Nicholas (East Africa Investments)

May 2021 –

Intro

My name is Joanna Nicholas, I am the Country Director for East Africa Investments (EAI). I’ve been based in Rwanda since 2006 and I’ve run businesses both in the UK and in Rwanda.

Who are East Africa Investments?
We are a group of British investors who invest primarily in high growth-potential technology companies based in East Africa. But our portfolio is diversified with other more traditional types of businesses as well.

Company registration

Is East Africa Investments registered in Rwanda?
#registration

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.

#registration

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, and 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 several 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 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.

Dealing with local institutions

How has it been dealing with the Rwanda Revenue Authority?
#institutions

Dealing with Rwanda Revenue Authority (RRA) can be quite troublesome. The reason is that the vast majority of people there don’t necessarily understand how businesses work.

During our meeting, the founders started saying that they wanted to buy back the shares using company money! Of course, we told them that was not possible, as this was not their money, it was the company’s money. Yet, when asking the Commissioner-General, he said he agreed with them, and didn’t see the difference…

The people at Rwanda Finance and the RDB’s investment after-care service are more reliable and have proven to be very useful when dealing with these kinds of matters. I’ve used them once on an immigration issue and that went very smoothly.


Is it easy to get legal documents recognised in Rwanda?
#institutions
In the UK it’s easy to get a document accepted as legal. Sometimes you’ve just got to sign the back of your passport picture and things like that. But it’s generally easy.

In Rwanda, the starting assumption is that you’re faking a document. So, to get a legal document recognised by a government or other institution, you very often have to get it notarized.

This has caused us numerous problems because in the UK there are notaries, but they are very few and extremely expensive. In Rwanda, if you go to get something notarized it costs less than a dollar. In the UK it is over £ 150 per page!

Plus, Rwandan authorities won’t always accept the way a document has been certified by a foreign authority. So, when trying to register a new shareholder in a Rwandan business it’s possible that your documents would get rejected.

This has happened to us when trying to register a new shareholder in the past. In order to do this, we had to prove who East Africa Investments Ltd was through our company certificate. But we just don’t do those in the UK anymore, because everything is now digitised. So I applied to HM Companies House for a company certificate’s “original print-out“ which cost about £ 200. This document showed our registration certificate and articles of association and was stamped on the rear of each page saying: ‘this is an authentic original document’.

But then when we uploaded that to the RDB system here, they told us that: “A notarised document can’t be stamped on the rear of the page”…

I ended up having to email the Registrar General for the whole country, saying: ‘this is an original document, can you please ask your colleagues from the RDB to accept this as a valid document?”.He did it, and after that, our documents were accepted.



I believe the American embassy in Rwanda has a service that allows the certification of American documents, which makes their lives easier. But as far as I know, European embassies do not. At least not the UK embassy.

Accounting

How have you been managing your accounting here?
#accounting

When it comes to my business in the UK, I do all the accounting and reporting myself. I file my receipts, my VAT submissions, etc and if I happen to make a mistake then that’s fine.

Here, in Rwanda, the penalties are very tough.

In most places, the period between the end of the taxable period and the deadline to submit is pretty long, which allows you to sort out all of the paperwork. Here you only have 15 calendar days.



In my case, a few years ago, on that particular month of the year, I found out that one of my employees had been stealing so I had to sack her. So, I was busy with all of these processes while also running the business, and then I also had to turn my mind to submit all of my expenses (which that employee was supposed to have done but she hadn’t).

So, I found myself ploughing through piles of receipts. And here, to be able to reclaim VAT on a receipt – which is owed to you as a Business – you have to have the EBM (Electronic Billing Machine). The process requires you to type a 16-digit code followed by another 8-digit code for every receipt. Once entered, the system will automatically look up those codes and if they can’t find a match in the database, they’ll automatically reject them, and you have to start again!

So, I found myself having my submissions rejected over and over again until I eventually managed to submit everything. Only it was 2 minutes past midnight on the day of the deadline… This cost me an instantaneous fine of $ 5,000.

Have you ever outsourced your accounting?
#accounting

After one or two years of doing everything myself, I decided it was time to use the services of an accounting firm. So, I Googled accounting firms and asked for quotes but got crazily high prices asked for over $ 1,000 a month. Which of course doesn’t make sense because for that price I can pay someone full time.

So, I got a recommendation from King Fisher (the kayak company). But after two years the service was so appalling that I decided to leave.

Firstly, the data entry in Quickbooks (which was done by juniors) was very bad quality and often had spelling mistakes – which is highly problematic when trying to track records of customer accounts!

Secondly, because the fines are so punitive, the accounting firms have the opposite premise to the ones you’d find in Europe. In Europe, you expect that the accounting firm works for you, and helps you make your tax payable as low as possible. Here, fearing the heavy fines, accounting firms simply try to reduce the risk for themselves. Which means they end up making you pay as much tax as possible.

As an example, in the first year of working with this accounting firm, according to my books, I’d made a loss and should have owed no tax. While according to their books I was supposed to pay $ 10,000 of tax!

So, after two years I moved to another company (also a recommendation), but the same problems occurred. And in those 3 years, no accounting firm ever gave me any kind of accounting advice as to how to reduce my taxes.

Now, I only run my consulting business, so there are very few transactions which I can deal with myself. But if I were to open a “high-transaction-volume” business again I would hire an accountant internally.

As a general rule, people should only ever hire accountants who are registered on the ICPAR list. ICPAR have a list of accredited accountancy firms to choose from on its website. If you face problems with them, then you should report it back to iCPAR.

Being a member of EBCR was of huge help. 80% of what I’ve learned about paying taxes I’ve learned from other people. I got plenty of tips and tricks and even critical information from them.

How do keep track of legislation regarding tax?
#tax
PWC regularly sends out briefings about regulation changes and publishes them on their website. They are a good up-to-date source for these things.



There’s another particularity in Rwanda: If in the UK you told me ‘Go read the law’, I would laugh at you. I honestly wouldn’t even know where to look for it.

Here, it’s actually not that difficult. You can literally look up the most recent laws



and most of the Government ministries have a page on their website showing the most recent law. For example, the VAT law is only about 10-pages long, so you could actually sit and read it yourself.

Being able to read the law was very useful a little while ago to a friend of mine running a tourism business in Rwanda:

The law here, says that you can’t expense a business lunch as a business expense. As in you can have your business pay for it, but you couldn’t expense it from your sales to deduct it from your VAT (because otherwise, everyone would likely abuse it).

So, the accountant of this tourism company said that any kind of food receipt could not be claimed as an expense. But my friend argued that as a tourism company, he sometimes has to pay for 20 people on a tour to have lunch at a nice hotel. So, surely then that must be considered a direct business expense.

In the end, he went to the Rwanda Revenue Authority and asked them to write a letter confirming that ‘of course, tourism businesses were allowed to deduct food for tourists as an expense’, and only then did the accounting firm accept it.

But that was only possible because he was able to, by himself, read the law.

What is withholding tax?
#tax
The tax payment system here is set up on the assumption that you’re always working with people who are not registered for tax.

So, if you bought bananas from somebody on the side of the road and you wanted to include that as a company expense, you would basically need to deduct 15% off and pay that directly to the Rwanda Revenue Authority on the basis that you’re withholding tax on behalf of the vendor. Because (the assumption is that) the vendor isn’t registered.

It’s not something that I knew of before coming to Rwanda, but it makes total sense in a context where there just aren’t enough taxpayers.

IP & Trademark

#IP & trademark
#institutions

Back in the day, I owned a bicycle business called ‘Rwandan Adventures’ which I wanted to trademark. I visited the trademark desk located in a small office in the RDB building. It’s very convenient because you can literally just walk in to get help.



But, as I learned, you cannot trademark a business name that contains the word ‘Rwanda‘ in it.

As I eventually sold the business, I never went as far as resolving the issue. But as with a lot of things with the Rwandan institutions you often just have to get past the first layer of people to get problems resolved. Once you get to the higher levels of management you start being able to explain the situation and work things out with them.

So, for this trademark, it would have been possible to get some letters of support from the Head of Tourism and other various people and then I would have likely been able to move forward.

Is it easy to access the right people in these institutions?
#institutions

The great thing about Rwanda is that, as a general rule, higher managers in the institutions are a lot more accessible compared to the UK.

You can even see it when visiting the websites of the various government agencies. There you’ll almost always be able to find the names, contact details, and even pictures of the relevant people from each department. There’s a real culture of transparency like that.

The advantage of being an EBCR member is that you can first come to discuss your problems with members of the EBCR community to get advice on what to do, rather than going straight to those people in the government agencies and “overusing” them.

As a general rule it’s a lot more effective if EBCR, who already know the right people to talk to, simply reach out to them on your behalf.