Rwanda gazettes new Investment Promotion and Facilitation Law

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EY Global

15 Apr 2021
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Rwanda

Executive summary

Rwanda recently gazetted the Investment Promotion and Facilitation Law N° 006/2021 (8 February 2021) which effectively repealed the Investment Promotion and Facilitation Law N° 06/2015.

In a bid to improve Rwanda’s competitiveness as an investment destination, the new Investment law (the law) expands the list of eligible investors and incentives available to registered investors meeting the necessary requirements.

This Alert highlights the key provisions under the gazetted Investment law.

Detailed discussion

Priority economic sectors

The law increases the list of priority economic sectors to include mining activities relating to mineral exploration; logistics and electric mobility; construction or operations of specialized innovation parks or specialized industrial parks; tourism that includes hotels, adventure tourism and agro-tourism; horticulture and cultivation of other high-value plants; 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.

An Order of the Minister may determine other investment incentives corresponding to additional priority economic sectors.

Strategic investment projects

The law introduces a new investor category for strategic projects of national importance and impact on the development of Rwanda and approved by the Cabinet. Additional investment incentives may be granted to strategic investment projects upon proposal by the Private Investment Committee.

Validity period for investment certificates

The law also introduces a five-year validity period for investment certificates from the date of issuance and subject to a maximum renewal period of five years. In contrast, investment certificates issued under the repealed investment law did not have any validity period.

The transitional clauses provide that incentives granted under the repealed law will remain valid for 12 months from the date of gazettement of the new law. Therefore, investors currently holding investment certificates will be required to reapply for new certificates before 8 February 2022. However, investment certificates whose period of validity has been fixed under concluded agreements between the Government and registered investors will remain valid until the expiry of their period of validity.

Expanded list of eligible investors

The list of investors eligible for incentives under the Investment law has been expanded as follows:

Preferential corporate income tax rate of 0%

This incentive now eligible to a philanthropic investor spending at least US$20,000,000 in an entity primarily aimed at making social impact in their respective sector and fulfils guidelines provided by the Private Investment Committee.

Philanthropic investors are also eligible for the following:

  • Exemption from value added tax (VAT) and corporate income tax (CIT) on grants and funds transferred to the entity for the purposes of financing its social impact activities
  • VAT is zero-rated for locally procured goods and services
  • Exemption of employment income tax on foreign nationals recruited by the entity and reside in Rwanda, though foreign employees should not exceed 30% of the professional staff
  • A refund of social security contributions paid by foreign employees of the entity upon their permanent departure from Rwanda
    The law has created a list of new incentives available to eligible investors as follows:
Preferential CIT rate of 15%

Additional investors eligible for this incentive include:

  • A registered investor that establishes an innovation research and development (R&D) facility, information and communication technology training center, software build and test lab, information and communication technology and innovation specialized institution of higher learning, business incubation center and related activities in the area of information and communication technology and innovation sector.
  • A registered investor licensed to operate as a fund management entity, collective investment scheme, wealth management services, financial advisory commercial entity, family office services, fund administrator, financial technology commercial entity, Captive Insurance Schemes, private bank, mortgage finance institution, finance lease commercial entity, Asset Backed Securities, reinsurance company, trust and corporate service providers.
  • A registered investor with an investment involved in electric mobility and upon fulfilling the criteria provided for by relevant laws.
  • A registered investor with an investment project involved in adventure tourism and agriculture tourism and upon fulfilling the criteria provided for by relevant laws.
CIT holiday of up to five years

This incentive is now eligible to a specialized innovation park developer or specialized industrial park developer which is entitled to a maximum five-year CIT holiday from the first year the project makes a positive net income.

New investment incentives

Preferential CIT rate of 3%

This incentive will be granted to the following registered investors who fulfil the set requirements:

  • A registered investor licensed to operate as a pure holding company
  • A special purpose vehicle registered for investment purpose
  • A registered investor licensed as a Collective Investment Scheme
  • Foreign sourced trading income granted to a registered investor operating as a global trading or paper trading
  • Foreign sourced royalties granted to a registered investor operating as an intellectual property company
Preferential CIT rate for export investments

Registered investors exporting goods and services are eligible for the following incentives:

  • 25% CIT to a registered investor whose total turnover arising from export of goods and services is at least 30% and less than 50%
  • 15% CIT to a registered investor with at least 50% of total turnover coming from export of goods and services

Eligibility in any given year is determined by total exports of goods and services in that year. These investment incentives are applicable to eligible investors for a maximum of five years commencing from the first year of exporting at least 30% of total turnover of goods and services.

Incentives for internationalization

A small and medium investor or emerging investor registered as an investor with an investment project involved in export is entitled to a 150% tax deduction of all qualifying expenditures relating to internationalization subject to preapproval by the Commissioner General of Rwanda Revenue Authority. Such qualifying expenditure includes:

  • Overseas marketing and public relations activities including launch of in-store promotions, road shows, overseas business or trade conferences
  • Participation in overseas trade fairs not supported by another existing initiative
  • Overseas business development cost
  • Market entry and research costs such as costs of establishing a legal entity in a foreign market, salary costs of employees stationed in foreign market, analysis of market opportunities, supply chain and entry requirement

However, an eligible registered investor may claim the tax deduction on a maximum of US$100,000 of qualifying expenditures in each year.

A small and medium investor or emerging investor is one who generates an annual turn-over of less than FRW100,000,000; has net capital investments of less than FRW75,000,000 and employs between 10 to 100 workers.

Preferential withholding tax of 0%

Applicable to dividends, interest and royalties paid by investors benefiting from:

  • A preferential CIT of 3%
  • A preferential CIT of 15% restricted to a specified category of registered investors
Preferential withholding tax of 5%

A preferential withholding tax of 5% is applicable to dividends and interest income paid to an investor investing in a company listed on the Rwanda Stock Exchange.

It is important to note that the Income Tax Law of Rwanda provides for a withholding tax rate of 5% applicable on dividends and interest on securities listed on capital market whose beneficiaries are resident taxpayers of Rwanda or the East African Community.

As such, there is a need to have both laws harmonized in order to provide clarity on the beneficiaries of the preferential withholding tax rate.

Preferential withholding tax of 10%

This rate is applicable to payments by specialized innovation park developers or specialized industrial park developers on interest on foreign loans, dividends, royalties, and service fees (including management and technical fees).

Incentives for specialized innovation park developers and specialized industrial park developers include:
  • Exemption from paying property tax for a period of five years from the date of issuance of the construction permit
  • Exemption from paying land transfer fees provided that the transferor holds shares equivalent to the value of immovable property transferred
  • Permitted to carry forward accumulated tax losses in the event of a change of ownership of share capital or voting rights amounting to more than 25% in a given year (subject to fulfilling set conditions)
  • Entitled to carry forward losses for a period of seven years from the first year of making the loss, by deducting losses in the order in which they incurred. Extension of the loss carrying period may be granted on application to the Tax Administration
  • Accelerated depreciation of 50% in respect of capital expenditures incurred for a period of one year from the date on which construction works were started
  • Expedited pre-approval and VAT refunds by the Tax Administration for professional and technical services procured outside of Rwanda
  • Zero-rated VAT for construction materials and finished goods at investment for construction projects within specialized innovation parks or specialized industrial parks
  • Exemption from paying domestic taxes including withholding tax and excise duty, where applicable, on importation of construction materials and finished goods.
Incentives for start-ups

Angel investors investing a maximum of US$500,000 in a start-up for a minimum period of two years are eligible for:

  • Exemption from capital gains tax upon the sale of shares, provided the shares were initially purchased as a primary equity issuance by the start-up
  • Exemption from withholding tax applicable to dividends paid for five dividend issuances by the start-up
R&D incentives

Financing under the Seed Innovation Fund available to eligible strategic investment projects or small and medium investors or emerging investors in the form of convertible grants, equity and debt. Some of the qualifying activities include qualifying manpower costs; training costs; costs for materials, equipment, software and technology acquisition; professional services engaged; costs incurred on intellectual property rights.

Incentives for the mining sector

Registered investors holding a valid exploration license are entitled to carry forward losses for a period of 10 years from the first year of making the loss, by deducting losses in the order in which they incurred.

This incentive is applicable where the mineral exploration expenditure has accounted for at least 50% of the investor’s total expenditure during the years in which the losses arose.

Preferential tax incentives for film industry investors

A registered film investor is eligible for the following incentives:

  • Zero-rated VAT for locally procured goods and services
  • A preferential withholding tax of 0% on foreign specialized services procured subject to approval by the Rwanda Film Office and Rwanda Revenue Authority 
Talent attraction incentives include:
  • A two-year entrepreneurship visa to start a business in Rwanda for start-up founders and innovative entrepreneurs who are foreigners and their dependents
  • A two-year talent visa commencing from the date of completion of their studies to qualifying international students from qualifying higher institutions of learning
  • A two-year visa for qualifying remote workers in priority professional fields allowing them to live in Rwanda and legally work for an employer registered abroad or their own company
  • Work permits for managerial, professional and technical foreign employees recruited by a company which has established its headquarters or regional office in Rwanda
  • Permanent residence to high net worth individuals upon fulfilling eligibility criteria determined by the relevant laws
  • Rwandan nationality by acquisition to high net worth individuals upon application following five years from the date of receipt of permanent residence status, and subject to meeting any of the set requirements.
Next Steps

All taxpayers currently holding investment certificates issued under the repealed law should update their business plans and submit a new application before 8 February 2022.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Kenya), Nairobi
  • Francis Kamau 
Ernst & Young Rwanda Limited, Kigali
  • Michael Ichura
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
  • Bruno Messerschmitt 
  • Alexis Popov
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
  • Kwasi Owiredu
  • Byron Thomas 
Ernst & Young LLP, Pan African Tax Desk, New York
  • Brigitte Keirby-Smith
  • Dele Olagun-Samuel

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert