October 13, 2023
Rwanda gazettes new law on Value Added Tax
The Government of Rwanda gazetted the Value Added Tax Law No 049/2023 (VAT Law 2023) on 14 September 2023. The VAT Law 2023 repealed the VAT Law No 37/2012 that was gazetted in December 2012 and all prior legal provisions that were contrary to the VAT Law 2023.
The primary objective for enacting the VAT Law 2023 is to align its provisions with the Income Tax Law (ITL 2022), which was enacted on 28 October 2022 in tandem with the new developments within the Kigali International Financial Center (KIFC) initiative, and the Tax Procedure Law (TPL 2023), which was enacted on 31 March 2023 with an aim of enhancing tax compliance and expanding the tax base in Rwanda.
The new VAT legislation encompasses a comprehensive approach to enhance taxpayer awareness of their duties, provide additional clarity to current provisions, advocate for a reduction in carbon emissions, reinforce previously ungazetted provisions and broaden the tax base by introducing incentives for end consumers.
This Alert highlights the key provisions under the gazettement of VAT Law of 2023.
Definition of terms (Article 2)
The VAT Law 2023 has introduced and defined new terms and amended existing ones as follows:
a) Exported service (New)
A service provided for use or consumption outside Rwanda, whether the service is supplied in Rwanda or both inside and outside Rwanda but which does not have any impact on the recipient's interest in Rwanda
b) Hybrid automotive vehicle (New):
A type of automotive vehicle that combines a conventional internal combustion engine system with an electric vehicle propulsion system
c) Final consumer (New):
Any person who buys a service or a good without the intention to sell or to use it for business purposes but for personal use
Tangible property, including animals but excluding money
An individual, company, partnership, foundation, permanent establishment, trust, cooperative, local or international non-governmental organization with legal personality, faith-based organization, a public organ, a diplomatic body that represents a foreign country, international organization and any other association of persons regardless of its status
f) Liberal Professional:
A profession exercised on the basis of special skills, in an independent manner, in offering services to the client
Taxation of value added tax (Article 3)
The VAT Law 2023 has introduced a new paragraph meant to bring "online supplies" into the ambit of taxation. The aim is to align with the current ITL 2022, which introduced digital services as part of the taxable sources of income. However, the modalities of subjecting digital services to VAT will be provided under an Order of the Minister.
Persons responsible for paying value added tax (Article 5)
A new provision within the VAT Law 2023 has introduced the following requirements for those responsible for paying VAT:
Previously, the obligation to pay VAT rested solely with VAT-registered individuals. However, the new provision aims to enhance clarity on who is required to charge and account for VAT.
Taxable goods and services in Rwanda (Article 6)
The VAT Law 2023 clarifies what constitutes taxable goods and services as follows:
Zero-rated goods and services (Article 7)
The VAT Law 2023 has extended the list of goods and services subject to zero rating (0%) as follows:
Zero-rated items have been expanded to support the domestic tourism market, conform to the destination-rule principle, and encourage the reduction of carbon emissions through the adoption of electric and hybrid vehicles to achieve the country's sustainability goals on net-zero carbon emissions.
Exempted goods and services (Article 8)
The VAT Law 2023 has expanded the list of exempt goods and services to include:
Entities that import or locally manufacture the exempted equipment for health-related purposes must be recognised by Rwandan legislation as public institutions, social welfare organisations and any other form of voluntary or charity organisations.
The expansion of the exemption list primarily serves to include specific goods that were previously VAT-exempt through an Order of the Minister while also aligning the VAT Law 2023 with the provisions of the current Income Tax Law (ITL 2022).
Value Added Tax point (Article 12)
The law introduces a new paragraph that incorporates "the date on which a taxpayer requests deregistration from the value added tax" as a determinant for the VAT point.
Acquisition of foreign services (Article 14)
The VAT Law 2023 introduces additional procedures pertaining to the importation of foreign services that require taxpayers seeking to acquire services not locally available in Rwanda to request for authorization from the Minister in charge.
Further, an Order of the Minister will be gazetted to provide guidelines to taxpayers prior to the authorization to acquire foreign services not available in Rwanda.
Previously, there had been significant contention between taxpayers and the Tax Administration on the modalities of determining services not available in Rwanda.
Time for importation of goods and services (Article 15)
The VAT Law 2023 has introduced an additional paragraph detailing that goods are considered to have been imported on the date they enter Rwandan territory in accordance with customs law while "services are considered to have been imported on the date the importer receives them."
Previously, the repealed law was silent on time for importation of "services."
Entitlement of input tax (Article 17)
The VAT Law 2023 introduces a condition for a taxpayer to claim input VAT on taxable goods and services, provided that the output tax was paid to the Tax Administration.
This new requirement jeopardizes the legitimate claim of input VAT, given that taxpayers do not have the capacity, duty or knowledge to enforce remittance of output tax by other suppliers.
Further, the VAT Law 2023 has been amended to allow taxpayers who hold relevant supporting documents that do not exceed 12 months starting from the day of VAT declaration related to those documents to claim inputs.
Previously, the repealed law provided a two-year time limit. By reducing the time limit for input tax entitlement, this amendment aims to enhance tax compliance by encouraging timely settlement of taxes and invoices between taxpayers,
Being denied input tax (Article 20)
The VAT Law 2023 has been amended to expand items eligible for restricted input as follows:
Previously, the 40% restriction pertained to business operational cost such as electricity and telephone expenses. However, with the new interpretation it is anticipated that the restriction would extend to all goods and services that cannot be separated from business or personal use.
Post-sale adjustment for unrecoverable debt (Article 23)
The repealed law has been amended to include an additional condition for taxpayers seeking refund of unrecoverable debt as follows:
This provision was introduced to align with the ITL 2022 (Article 30) on bad debts.
Amendment of original Value Added Tax return (Article 24)
For purposes of clarity, a new provision has been added detailing modalities of amending an original VAT return for a taxpayer who for valid reasons wants to amend the original VAT return after deadline with a reduction in VAT payable. The new provision requires that the taxpayer must apply in writing to the Commissioner General before making any amendment.
Previously, the process required the taxpayer to complete a "tax assistance form" for the Tax Administration to grant access for amending the return. The new provision is meant to discourage taxpayers from arbitrarily amending VAT returns downwards.
Value added tax refund (Article 26)
Article 22 of the repealed law has been amended to clarify that: "Input value added tax refundable as provided for by this Article must be claimed in its taxable period."
Reward for a final consumer (Article 27)
The VAT Law 2023 has introduced VAT incentives to reward final consumers who present the Tax Administration with an electronic invoice.
The modalities and value of the reward are to be determined in accordance with the Ministerial order.
Enterprise and its branches (Article 31)
The VAT Law 2023 has been amended to require that multiple branches be registered under a single Taxpayer Identification Number (TIN) for VAT purpose. Previously, branches had separate TINs from the main company.
Article 32: Currency used
The VAT Law 2023 has introduced a new provision detailing that any amount that is expressed or paid in a currency other than Rwandan francs should be converted as follows:
This provision is meant to provide clarity and use of a common benchmark rate by taxpayers in translating invoices denominated in foreign currency into Rwandan francs.
Tax refund for embassies, foreign diplomatic missions in Rwanda and international organizations (Article 33)
Given Rwanda's emerging status as a prominent hub for meetings and conferences in Africa, an additional paragraph has been incorporated to address international organizations of which Rwanda is a member.
Under this provision, these organizations may be eligible for a refund on goods incurred or imported during the meetings subject to authorization from the Commissioner General upon request by the taxpayers.
All concerned taxpayers should put in place measures to comply with the provisions of the Value Added Tax Law 2023, noting that the requirements of the new law took effect from the date it was gazetted, i.e., 14 September 2023.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Kenya), Nairobi
Ernst & Young Rwanda Limited, Kigali
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor