Executive summary

The Government of Rwanda gazetted the Tax Procedures Law No. 020/2023 (TPL 2023) on 31 March 2023, governing tax procedures applicable to taxes on income, value added tax (VAT), property tax on motor vehicles and boats, tax on minerals and any other tax without a specific tax procedure. The TPL 2023 repealed the Tax Procedures Law No 026/2019 and all prior legal provisions contrary to the TPL 2023.

The Rwanda Revenue Authority (RRA) has three months to bring the tax management system into conformity with the provisions of the Law.

The Law addresses a wide array of issues, including communication, tax rulings, tax representatives, taxpayer registration, electronic invoicing, assessments, audits, voluntary compliance, dispute settlement and tax recovery.

This Alert highlights the key provisions under the gazetted TPL 2023.

Detailed summary

Taxes covered by the law (Article 2)

The TPL 2023 has summarized and regrouped the following tax categories covered by the new law:

• Taxes on income
• VAT
• Property tax on motor vehicles and boats
• Tax on minerals
• Any other tax for matters not covered by the specific tax procedure in TPL 2023 or a tax that can be established without its specific tax procedure.

Definition of terms (Article 3)

The TPL 2023 has introduced and defined new terms and amended existing ones as follows:

• Permanent establishment. A known fixed place of business through which a business which gives rise to income is wholly or partially carried on
• Tax period. A period during which the taxpayer carries on taxable activities and at the end of which they pay tax
• Business. Any commercial, industrial, or professional activity carried out with the purpose of generating profit
• Tax evasion. Any illegal act intended to hide or ignore all or part of liability to tax

Taxpayer's address (Article 5)

The TPL 2023 introduced a timeline of 10 days within which taxpayers must notify the Tax Administration on their change of address (i.e. physical, postal or electronic).

Books of accounts and records (Article 13)

The TPL 2023 expands the list of books of accounts and records that must be kept by taxpayers whose annual turnover is between FRW (Rwandan Franc) 12 million and FRW 20 million to include:

• A record of all daily sales showing all daily cash and credit sales
• A record of all daily purchases indicating goods or services acquired by cash and by credit to constitute stock in trade or constitute necessary operating expenditures
• A record of all financial transactions indicating cash entries and cash expenditure

Previously, the required list of records was limited to tax liability, withheld tax, declaration of tax withheld as well as a sales records.

Books of accounts and record keeping (Article 15)

The TPL 2023 extends the required period for taxpayers to maintain their books of accounts and records from 5 years to 10 years, starting from 1 January following the fiscal year to which they relate.

For a taxpayer with a special calendar year (i.e., year-end is not 31 December), the 10-year period starts from the first day of the month following the end of the granted special calendar year.

The TPL 2023 also mandates that books of accounts and records be prepared in one of the official languages and can be electronically accessed and shared in electronic form in accordance with the directives of the Commissioner General. The official languages are Kinyarwanda, English and French.

Previously, books of accounts and records were required to be kept in the taxpayer's premises or in any other place located within Rwanda.

Additional requirements for a person in Real Regime declaration (Article 16)

The TPL 2023 mandates taxpayers with related-party transactions under the Real Regime to accompany their annual tax declaration with their transfer pricing documentation prepared in accordance with relevant legislation. The law however is silent on the mechanism for submitting the Transfer Pricing documentation.

Currently, taxpayers are only required to submit a schedule of their controlled transactions in a prescribed form to the tax administration, together with the income tax declaration.

Records kept by withholding agent (Article 22)

The TPL 2023 introduces a new requirement for payments made to residents of countries that have signed tax treaties with Rwanda. When submitting a the withholding tax declaration, taxpayers will be required to submit a tax residency certificate for the payee issued by the competent authority of the contracting state.

The Rwanda Revenue Authority is required to configure the e-Tax management system within three months from the gazettement of the TPL 2023.

Audit notice (Article 28)

The TPL 2023 expands the information that an audit statement must communicate to a taxpayer to include the tax period to be audited.

Upon receipt of the audit notice, the taxpayer may not change the declarations and information contained in the accounting records at issue in the audit, unless authorized by the Tax Administration.

Unique audit principle (Article 30)

The TPL 2023 expands the list of circumstances under which the Tax Administration may conduct another audit to include situations in which the first audit related to a desk audit, a refund audit or a Transfer Pricing audit and the Tax Administration wants to conduct a comprehensive audit.

Time limit on the power to audit (Article 35)

The TPL 2023 includes an additional provision to restrict a taxpayer's right of rectification (i.e., correction) of a tax declaration to five years starting from 1 January following the concerned tax period, unless the rectification increases the tax to be paid or leads to the taxpayer's loss.

Previously, taxpayers could amend any of their past declarations no matter how many years had passed.

Audit procedure (Article 36)

The list of procedures in which tax audit is conducted has been reduced to:

• Contradictory procedure
• Non-contradictory procedure

Previously, the list of procedures also included issue-oriented audit, desk audit and audit without notice, which have been categorized under Audit types (Article 42).

Audit types (Article 42)

The TPL 2023 has introduced Transfer Pricing audits as one of the type of audits that can be conducted by the Tax Administration. The other existing types of audits include comprehensive audit, issue-oriented audit, desk audit and refund audit.

Comprehensive audit (Article 43)

The TPL 2023 details the circumstances that could result in the Tax Administration carrying out a comprehensive audit, as follows:

• Based on a risk assessment which finds that the taxpayer is not complying with the statutory record-keeping, reporting and tax payment requirements and that this behavior relates to various taxes
• The taxpayer has been subject to another type of audit that revealed that the misconduct affects other taxes that are not covered by this audit.
• The taxpayer requests a comprehensive audit which, in the tax administration's opinion, is necessary
• By another reason provided for under this Law

Transfer Pricing audit (Article 46)

The TPL 2023 introduces new provisions relating to the Transfer Pricing audit under which these audits shall be carried out by the Tax Administration on controlled transactions between related parties to ensure compliance with the arm's-length principle.

This provision was introduced to align the TPL 2023 with Ministerial Order Nº 003/20/10/TC of 11/12/2020, establishing general rules on transfer pricing.

Appeal to the Commissioner General (Article 51)

The TPL 2023 stipulates that the Commissioner General suspends the collection of the tax that is subject to appeal if the taxpayer who is making the appeal has paid the undisputed portion of the tax.

Previously, submitting an appeal did not guarantee the suspension of tax collection. This provision is aimed at encouraging taxpayers to voluntarily settle the undisputed portion of the tax when submitting an appeal.

Conditions for admissibility of appeal (Article 52)

For appeals to be admitted, the TPL 2023 introduces an additional requirement for an appeal to be submitted via an electronic tax filing system module set by the Tax Administration or through communication provided by the Tax Administration if the electronic tax filing system is not in use.

Further, the TPL 2023 provides that disputes related to a notice of assessment generated by electronic tax system based on declaration made by a taxpayer may be administratively resolved or appealed.

Inadmissibility of documents (Article 57)

The TPL 2023 stipulates that at no time during an appeal may a taxpayer provide any additional document that was not produced during the audit, unless the taxpayer can prove a valid reason for not producing the document earlier.

Previously, the law was silent on the inadmissibility of additional documents.

Burden of proof imposed on the Tax Administration (Article 59)

The TPL 2023 has expanded the Tax Administration's burden of providing evidence to include a requirement for providing evidence if an audit is conducted without prior notice.

Burden of proof imposed on the taxpayer (Article 60)

The TPL 2023 further expands circumstances under which a taxpayer is required to present proof to include where the Tax Administration conducts a Transfer Pricing audit.

Seizure of the property of a taxpayer (Article 67)

The TPL 2023 introduces a provision allowing taxpayers 15 days from the day their property is seized to apply to the Tax Administration for authorization to sell the seized property by themselves in order to clear tax due. The taxpayer is given 90 days running from the day of receiving feedback on their application to sell the property and clear the tax due.

Previously, seized property could only be disposed by the Tax Administration through a public auction.

Liability of a representative of nonresident with a permanent establishment (Article 72)

The TPL 2023 has expanded the list of persons considered as a representative of a nonresident person with a permanent establishment in Rwanda to include Trustees.

This provision is meant to align the TPL 2023 with the provisions of the recently gazetted Income Tax Law (ITL 2022), which expanded the list of taxpayers subject to income tax to include trustees.

Interest for late payment (Article 80)

The TPL 2023 has now reduced the applicable interest rates for late payment of tax as follows:

Previously the interest rate for late payment was fixed at 1.5% calculated monthly. This amendment is meant to promote voluntary tax compliance and disclosure by taxpayers.

Administrative fine for non-declaration and non-payment of tax on time (Article 82)

To promote voluntary taxpayer compliance and disclosure, the TPL 2023 has reduced the applicable interest rates for situations in which taxpayers submit their tax declarations by the due date but the tax due remains outstanding:

Wrongful acts punished with fixed administrative fine (Article 81)

The TPL 2023 has expanded the list of the wrongful acts punishable with an administrative fine to include:

• Failure to submit financial statements by a person with obligation to submit its financial statements for taxation purposes
• Failure to timely provide information, failure to provide information or providing incomplete, incorrect, or misleading information following a request from the Tax administration.

To align the TPL 2023 with the ITL 2022 provisions, taxpayers whose annual turnover is below FRW 2 million have been excluded from administrative penalties applicable on failure to timely submit a tax declaration. Persons whose annual turnover is less than FRW 2 million are not required to file an annual tax declaration as per the ITL 2022.

Additionally, the TPL 2023 reduces, from FRW 100,000 to FRW 50,000, the administrative penalties imposed on micro enterprises whose turnover is between FRW 2 million and FRW 20 million.

The TPL 2023 also introduces a new provision prescribing administrative fines on any person who fails to timely provide information, fails to provide information or provides incomplete, incorrect, or misleading information following a request of the Tax Administration:

Failure to provide information related to controlled transactions (Article 86)

The TPL 2023 provides that a taxpayer who fails to provide information, provides incomplete, incorrect or misleading information, in relation to controlled transactions, is subject to an administrative fine equivalent to 5% of the value of the concerned controlled transaction.

The administrative fine has been introduced to further promote compliance with provisions of Ministerial Order Nº 003/20/10/TC of 11/12/2020 establishing general rules on transfer pricing.

VAT violations (Article 87)

The TPL 2023 expands the list of VAT violations to include the issuance of an incorrect VAT invoice with intention to decrease the amount of VAT payable or increase the VAT input credit. The taxpayer could be liable for an administrative fine of 100% of the amount of the VAT payable.

Fraudulent request for refund of tax (Article 91)

In a bid to clamp down on fraudulent tax refund claims, the TPL 2023 introduces a new provision stating that a taxpayer who fraudulently claims a tax refund may be imprisoned for a term of not less than two years and not more than five years and a fine equal to 100% of the amount unduly claimed.

Suspension of accrual of interests for late payment and penalties (Article 95)

The TPL 2023 entitles a taxpayer with accounts receivable from the Tax Administration to have penalties and late-payment interest accruals on the total outstanding amount owed suspended by the Tax Administration. The suspension in the accrual of interests for late payment and penalties takes effect from the day the Tax Administration's debt comes into existence.

This new provision is meant to provide relief for taxpayers with approved tax refunds that the Tax Administration has not yet paid.

Power of access to information (Article 97)

The TPL 2023 introduces new provisions giving the Tax Administration power to access information that may facilitate the implementation of various tax laws in force and all tax treaties ratified by Rwanda held by any person, including a person or institution bound by confidentiality. Upon request, the person must provide the information within 10 working days of receiving the request.

Counsel and representation (Article 98)

The TPL 2023 reduces, from three years to two years, the maximum period for which the Commissioner General may suspend a qualified professional who is not an advocate if the qualified professional contravened provisions of the law or related directives.

Payment of withheld VAT (Article 99)

The TPL 2023 has included a new provision empowering the Commissioner General to designate/authorize another person to withhold VAT.

This provision is meant to expand the list of entities required to withhold VAT and thus widen the tax base.

Transitional period (Article 103)

The Rwanda Revenue Authority has three months from the gazettement of this Law to configure the tax management system into conformity with the provisions of this Law.

Next steps

All concerned taxpayers should put in place measures to comply with the provisions of the Tax Procedures Law 2023, noting that the requirements of the new law took effect from the date it was gazetted, i.e., on 31 March 2023.

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

Ernst & Young (Kenya), Nairobi

• Francis Kamau | francis.kamau@ke.ey.com
• Robert Maina | robert.maina@ke.ey.com

Ernst & Young Rwanda Limited, Kigali

• Stephen Sang | stephen.sang@rw.ey.com
• Timothy Muriuki | timothy.n.muriuki@rw.ey.com
• Aline Umuhire | aline.umuhire@rw.ey.com
• Fabiola Ingabire | fabiola.ingabire@rw.ey.com

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor