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Executive summary

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 The VAT Law 2023 repealed the VAT Law No 37/2012 that was gazetted in December 2012 and all prior legal provisions that were contrary to the VAT Law 2023.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.

Detailed Summary:

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

d) Goods:

Tangible property, including animals but excluding money

e) Person:

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:

• Every taxpayer registered for VAT is required to charge and account for the tax to the Tax Administration within the deadline.
• A person who imports taxable goods and services pays VAT in accordance with the rates provided for by the VAT law.
• A public procuring entity is obliged to withhold VAT on all payments made for taxable goods and services supplied by successful VAT-registered bidders.

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:

• All goods supplied by a taxpayer in Rwanda are taxable except the ones that are exempted.
• Services supplied are taxable if the:
• Service recipient and service provider are residents of Rwanda
• Service recipient is a resident of Rwanda and the service is useful to the recipient in Rwanda
• Service provider is a resident of Rwanda and the service is useful to the recipient in Rwanda
• Unless exempted under this law, an asset of a person used in business that is sold is subject to VAT unless it is proved that the taxpayer was denied input tax on acquisition of that asset.
• Taxable assets of the taxpayer's business that is owned by the taxpayer on the day of de-registration for VAT are subject to the tax that remains unpaid as of that same day.
• A taxpayer must pay VAT for taxable goods and services of their business that the taxpayer used for his or her personal consumption.
• Imported goods or services are taxable if they are not exempted.

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:

• Exported goods and their auxiliary services, including those that are already exempted
• Commission fees charged to tourists for all-inclusive tour-package booking services
• Minerals sold on the domestic market
• Goods supplied in a shop ("Army shop") intended for persons working in security services as provided for by the legislation governing such a shop
• Locally assembled electric automotive vehicles, hybrid automotive vehicles, relevant batteries and their electric charging station equipment
• Local non-governmental organizations to which goods and services are donated and acquired through funding by countries or international organizations having signed agreements with the Republic of Rwanda

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:

• Sanitary pads
• Leases of a movable property by licensed financial institutions or by or for a special purpose vehicle
• Exempted goods under lease
• Processed maize, rice and milk
• Agricultural insurance services
• Gaming activities
• Personal effects of a Rwandan diplomat returning from a foreign mission, those of a returning Rwandan national resident abroad, as well as those of any other Rwandan returning to Rwanda and entitled to a tax exemption in accordance with customs legislation; with the exception of returning Rwandan diplomats, other persons mentioned in this subparagraph are required to have owned their vehicle for at least 12 months for the vehicle to be exempted
• Transfer of assets between related persons residing in Rwanda at the time of the restructuring of their business
• Equipment for conserving bodies of victims of the Genocide against the Tutsi and its related evidence that appear on the list established by the Minister in charge of commemoration of the Genocide against the Tutsi and approved by the Minister
• Goods or services, including imported goods and services, which are sold, assigned, exchanged or otherwise transferred to or by a special purpose vehicle as a consequence of entering into an asset-backed securitisation transaction where the transaction has been approved under or is authorized by a law regulating capital market in Rwanda and the special purpose vehicle is a registered taxpayer in Rwanda
• Imported electric automotive vehicles, hybrid automotive vehicles, relevant batteries, and their electric charging station equipment

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:

• 40% of the value added tax paid on taxable goods and services in "business activity," if the goods and services are inseparable in such a way that it is impossible to determine which one is used for business purposes or for personal use

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:

• An individual whose debt is less than FRW 3m is required to prove that he/she has taken all reasonable steps over a three-year period to recover the debt for the debt to be considered as a refund.

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:

• On importation of goods, the amount is converted into Rwandan francs at the exchange rate applicable under the customs legislation for the purposes of computing the customs duty payable on the import.
• The amount is to be converted into Rwandan francs at the National Bank of Rwanda exchange rate applicable between the foreign currency and Rwandan franc on the date on which the amount is given.
• If there is no existing applicable exchange rate for a certain currency used by the National Bank of Rwanda, the applicable rate is computed on the National Bank of Rwanda exchange rate for the United States Dollar and a published cross-rate for that currency in question against the United States Dollar.

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.

Next steps

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.

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For additional information with respect to 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
• David K Kilimo | david.k.kilimo@ke.ey.com
• Emmanuel Rwigamba | emmanuel.rwigamba@rw.ey.com

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