Contents

Rwanda Revenue Authority (RRA)

East African Ventures

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.

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Viebeg Medical

How was the tax registration process for you?
#accounting #tax #registration

I did find it somewhat tricky because when I registered the company at the RDB I expected that I would automatically also be registered for tax. What I didn’t know was that I also had to go to the Rwandan Revenue Authority (RRA) to do that separately. Likely I had an accountant that helped me with that.

What would have helped, however, is if there had been a bit more clarity in terms of which taxes I needed to pay. For example, at the beginning for my smaller company TechEnfold we did not know we had to pay the cleaning fees. As it turns out, every month you have to pay 10,000 RWF (approx. 8.74 EUR) in “cleaning fees”, which is something that we don’t really have in Europe.

My experience was that I didn’t really know which taxes were supposed to be paid and I found myself going door-to-door in order to ask and understand. The accountant we eventually found helped us out. He was found by my business partner who sourced her from the University.

She actually had an MBA, but still really lacked an understanding of basic accounting and regulations. As a general rule, there is a big gap between the educational level and the professional requirements. As a matter of fact, Rwandan accountants often don’t know the whole system and the laws in application in Rwanda. When they come out of University they just know the very basics and then often make a lot of mistakes in the beginning, such as forgetting to declare taxes etc.

EBCR actually helped a lot with that. Discussing with the members and participating in working groups over time has really helped me gain a lot of clarity in terms of what taxes I have to pay and how things work.

It is not uncommon for Rwandese SMEs to get big fines when there is an audit because they often don’t know a lot of things about tax regulation.

Even CPAs (Certified Public Accountants) and tax advisors are likely to make a lot of mistakes because they don’t always properly know the laws. It can be hard to find a reliable source of information for these matters, and for many things, EBCR has provided exactly that.

Did you ever face any difficulties when it came to paying taxes?

#tax

No. With the exception of the cleaning fees – for which we ended up having to pay a small penalty – we have had no problems with paying taxes so far. Mostly because from the beginning I made sure to discuss with and gather information from the other European entrepreneurs here. Learning how to avoid mistakes, and generally how to do things.

Other than that, our initial investment allowed us to always have a good cash flow and therefore always be able to pay taxes on time.

How do you maintain visibility/control over your taxes and VAT declarations?

#tax #accounting

We tried with internally hired accountants and we tried with CPA (Certified Public Accountants) too. Quite frankly, in both cases, we were disappointed with the quality and reliability of the work. As a matter of fact, the advice we were given did not always match with what the RRA stipulated. So, we’d always had to double-check.

For instance, I went to the RRA to find out: How do you tax a bonus? And the CPA who’d been working on the market for 20 years and advised more than a hundred companies on that exact matter said that you only had to pay Withholding tax (WHT) which is 15%. But then I went to the RRA and learned that you actually have to declare all and pay all the liable taxes I.e. including PAYE (Pay as you earn), and RSSB Contributions which are almost 42%! So quite a big difference.

I’m glad I didn’t just listen to the CPA without inquiring further as that could have cost a big fine. But for all the other companies who’ve made many mistakes over the years, it has been very expensive for them.

Recently we’ve found the right accounting firm to manage our accounts. We’ve also got an external CFO, which we found through an EBCR recommendation, so that network has been helpful for us.

Which is the tax that has the greatest impact on your organization at the moment?

#Tax

The most we pay is PAYE (Pay as you earn) – which is what you pay for the employees on all the salaries – and Withholding tax (WHT). I think these two are almost the same every month. (We have a total of 25 employees: 14 in Rwanda and the rest are in our other East African Offices.)

For the first two years we were not yet profitable, so we did not pay Corporate Income Tax (CIT).

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BAG Innovation

What has your experience been with tax so far?

#tax #accounting

90% of foreigners who come and start a business here will hit a fine.

Because they don’t have a person telling them which are the basic things they have to do and which things they’ve got to look out for.

Likely I had a local accountant from the beginning who was very good at communicating those things. That was extremely lucky I think, because a lot of people miss out on the small things such as paying the public cleaning fee and patent annual fee, and the difference between paying the RRA and the RDB for whatever you’re doing. You have to figure those ones quickly, and it’s not complicated at all, you just need a 5-min discussion with someone who knows, and they’ll tell you.

When it comes to paying on time, it doesn’t matter if you’ve got a hundred excuses. If you pay a second late, you’ll get a fine. That’s how it should be. But again, the amount doesn’t always feel proportional. We’ve also paid fines. Mainly due to lack of capacity and staff (accountants).

But the most common ones that people pay fines for are very easy to avoid. And VAT is not rocket science either, just pay before the deadline and you’re good.

Do you find that the time between the end of the taxable period and the deadline to file your VAT is quite short compared to other countries?

#tax

I haven’t struggled with it, but then my business doesn’t have to go through any complex processes to collect this data.

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Sandberg Ltd.

From a regulatory perspective (looking for example at the kind of taxes that you have to pay) what are the key differences between having employees or contracting consultants?

#tax #hr
It’s much easier with consultants because you don’t carry the financial responsibility of paying their maternity leave, pensions, etc. so the tax looks different.

Find out more about pension and other contributions on RRA's website under RSSB While with consultants (on short-term contracts) you can just calculate 15% [Withholding Tax] and that’s your all you have to pay in taxes. So, it helps me as a company to work that way and not have staff to be responsible for. It makes my personal setup a little lighter.

Do you have an accountant to help you file your taxes?

#Accounting

Yes, I have a “consultant-accountant” who helps me file my taxes. I don’t want to do that myself. I really need somebody who knows the system and who knows the Rwanda Revenue Authority (RRA) and can do the communication and can also fix invoices and EBM (Electronic Billing Machine) receipts.

Did you find the right accountant from day one?

#Accounting

I’ve tried a few. I took a well-renowned company at the beginning, but they were very expensive. Today, I have a consultant that comes in from time to time and so it’s really a few things that he needs to do. I don’t have a high volume of transactions, so I just need somebody on a monthly basis, not on a weekly basis. So that’s a cheaper model.

Where did you find these accountants?

#Accounting

The first ones I found through recommendations from my network. The latest one was by chance while sitting in a café. I needed help with the Electronic Billing Machine, and they called the accountant of the company to come to help me. We started chatting and like that randomly…

But I trusted the company I was sitting in, so I thought: ‘If he can do their accounting then he can do mine.

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OX Rwanda

Where did you find your accountants?

#accounting

We’ve found our current accountants through a recommendation from people who have worked with them in the past.

Banking and accountancy have been two important errors that we’ve learn to pay attention to.

One of our first hires, post-series A, will be a CFO for the UK holding company. We want to be sure to have somebody with experience in international finance and cross-border transactions as well as tax efficiency and IP agreements.

Until recently we’d hired an external accounting consultancy on a monthly retainer. But one of the employees who were really good there has moved, so we decided to move with her to the other accounting firm she joined.

BDO East Africa

Regarding taxation, what word of advice do you have to give to foreign companies considering a move to Rwanda?

#advice #tax

As a tax professional, I know that the easiest way to come and operate in a new country is to get a local partner who understands the business itself and who also understands the “dos and don’ts”, including regarding exposure for tax and compliance.

Another thing is that

someone might come from another country which is more “tax-strict” and think “Ok, now we’re going to Africa and in Africa you can easily dodge taxes”. But then, when they arrive in Rwanda, they quickly become disappointed…

Secondly, people think that because they are coming on the red-carpet laid out by the RDB they can easily grab tax incentives. But the RDB is doing its role of “marketing”. Then when you go to the Rwanda Revenue Authority (RRA) they might tell you: ‘Look, this is how the tax system operates. You’re in or you’re out.’

Just cos a minister signed for you a paper saying you are tax exempt doesn’t mean that you will necessarily be given a tax exemption. You need to make sure you double check with the RRA.

What are the key differences between tax systems in Rwanda and Kenya or Uganda?

#tax

Within this region, most tax systems are more or less harmonised. Even tax rates tend to be similar. The only difference is how rigorously a country enforces them.

In Rwanda, the system is more effective at enforcing tax regulation. These neighbouring countries are sometimes more “relaxed” with enforcement.

If you compare Tax Revenues with the Country’s GDP, you see that Rwanda is the most effective at collecting tax in the East African region.

Also, when you compare how much tax the Government collets and how much the public feels the benefit of public investments, Rwanda is again the best in the region. People feel like they are getting back what they are putting in. You see security, you see cleanness, a well-maintained road network, you see a vibrant city and you know this comes from the taxes. No one here will tell you they don’t feel like they are not getting something out of their taxes.

For example, with the new EBM (Electronic Billing Machine) system the Rwanda Revenue Authority (RRA) is trying to get your tax performance before you even come to declare it. Neighbouring countries are also implementing the EBM system, but not at that level of, let’s say “intelligency”.

Then, of course, if you have been operating in a country where you’ve been able to easily play the system without paying taxes, you’ll come here and you’ll find it disappointing.

The Government in Rwanda is supporting and promoting certain sectors through various tax incentives. Do think these tax incentives are effective in the way that they are applied? Should foreign companies trust these tax incentives or do they risk being disappointed by the RRA later?

#tax

What is written in the investment law, is what’s effective. But people often prefer to hear than to read. So, if you hear what the RDB preach to you you’ll only hear about the tax incentives and exemptions. But when you come here, you’ll still need to see which exemptions you’re actually eligible for.

Someone might hear that “under certain conditions, we offer you 7 years tax-free!”. So, people like to retain the easiest interpretation which is: “tax-free!” but there are always some pre-requisites, and you have to pay attention to those.

What does it take for someone to navigate the Rwandan tax system? Would you say that entrepreneurs coming here can just get by on their own or would you say that it’s necessary that they get an accountant?

#accounting #advise

I would strongly advise him or her to get a tax advisor. It won’t cost a full-time job, but they’ll benefit from it a lot.

I don’t see someone doing their business with peace of mind without having
a tax advisor.

Some will navigate of course, but the fines are so heavy that it’s easy to lose the entire business because of one.

Hollanda Fair Foods

How did you learn how to navigate the tax system?

#tax

A lot of ex-pats here complain about taxes.

Yet, a lot of things that they are complaining about are actually just straightforward.

The problem is that a lot of companies in the private sector (maybe 60% of them) that you’ll deal with do not want to follow the rules of the RRA. So, if you’re trying to be transparent with the RRA it becomes difficult because your suppliers or service provider will not always give you the right information and supporting documents. This can make things difficult and make your tax filings complicated and you risk the RRA telling you that your taxes are not in order.

Rwanda is changing very, very fast. For example, before June 2016 EBM (Electronic Billing Machine) were non-existent and everyone was using paper. Now everything is changing.

You have a big informal sector. Lots of payments with no proof whatsoever. Now you have to prove it. And to prove you need to pay for the billing machine, you have to connect it to the network, and you need the platform to deal with the RRA, and the connection isn’t always working… So the infrastructure is not quite yet ready and also the people don’t always know how to use it properly yet.

So in Rwanda, we’re living in two realities: One where you need to do all the paperwork perfectly and the other is the informal economy. But those two realities need to live together and sometimes the companies who are trying to be compliant live in the middle of these two realities…

How do you resolve this problem for Hollanda Fair Foods?

#tax

One thing is just to accept penalties. That’s what you don’t want.

The other thing is that you might lose clients. So, for example, some clients might even refuse to sign delivery receipts when they buy our crisps because they are afraid of anything that comes close to formal. So, there you have to think: “Do I accept this, or do I refuse this client?”

And there the client might see you as arrogant and think you just don’t understand their culture. So it sometimes gets tricky to deal with these things.

For us, sometimes we might choose to sacrifice a client for the sake of being compliant and other times the opposite. But we can still be compliant in the second case, it just means that it makes our book-keeping more difficult.

So, we still give a delivery receipt for every client, and we still pay VAT (same for our suppliers). And if a contracting consultant doesn’t provide the right paperwork, then we pay Withholding Tax.

So in the end, we are actually tax-compliant. Though sometimes, because you don’t always have the official documents things might slip through and your bank statements might show that you have paid, but your tax statements don’t. And if that’s the case that means something has happened informally.

You really need to keep on top of it and if you’re busy when you’re growing, you sometimes forget things like that.

For me, the last time I paid a fine was June 2016. So, I have been managing well.

How do you do the accounting?

#accounting

I outsource it.

Have you been happy with the accounting services?

#accounting

No. I have just had a meeting with my new accountants today…

I would also advise any new entrepreneurs coming here to ask for your accountants’ certification and double-check it.

So our new accountants now they are certified by iCPAR.

How many different accounting firms have you tried so far?

#accounting

I’ve changed every 18 months.

Because after each year I did an audit. Which I passed but with one or two unacceptable comments.

(I’ve even had to bring in 4 different auditors because I was also not happy about the auditors we got.)

So every time you’ve had an audit or at the end of the fiscal year, you’ve personally gone back and double-checked your accounts?

#accounting

For us, we’re still a small business and we don’t have a turnover that would justify an audit. But I still have to do it for my investors.

Resources

Laws, Policies & Rulings – Rwanda Revenue Authority

RRA Tax Handbook

PWC – Tax briefings

Calculating PAYE

RDB Business Procedures – Paying Taxes