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April 15, 2021
Rwanda gazettes new Investment Promotion and Facilitation Law
Rwanda recently gazetted the Investment Promotion and Facilitation Law N° 006/2021 (8 February 2021) which effectively repealed the Investment Promotion and Facilitation Law N° 06/2015.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.
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 In contrast, investment certificates issued under the repealed investment law did not have any validity period.
The transitional clauses provide that incentives granted under the repealed law will remain valid for 12 months from the date of gazettement of the new law.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:
Preferential CIT rate of 15%
Additional investors eligible for this incentive include:
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:
Preferential CIT rate for export investments
Registered investors exporting goods and services are eligible for the following incentives:
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:
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:
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:
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:
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:
Talent attraction incentives include:
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
Ernst & Young Rwanda Limited, Kigali
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP, Pan African Tax Desk, New York