Business Times will for the next few weeks publish a series on the new investment law launched by the government last year. The series by Dr. Elvis Mbembe, a law don at University of Rwanda’s School of Law and an advocate for economic and social rights, will examine the policy in view of helping Rwandans and investors understand it better to benefit from it, as well as present its shortcomings. 

Last week, I discussed requirements that an investor has to fulfill before they register a firm in Rwanda. This week, I will examine the different incentives given to investors. 

The there has been numerous incentives provided for in the old law, the new investment legislation has introduced some attractive incentives for investments made in identified priority sectors. These incentives are in two categories: Fiscal and non-fiscal. The beneficiaries, however, must fulfill the conditions set in the annex to the law. 

Under fiscal incentives, an international company, which has its headquarters or regional office in Rwanda, does not pay corporate income tax rate as it was scrapped. It provides a preferential corporate income tax rate of 15 per cent for a registered investor in export-oriented business, and energy generation, or in any other priority economic sector determined as such by the Minister for Finance. Others are transport of goods, mass transportation of passengers, ICT, as well as financial services, and low-cost housing. 

The new law also gives a corporate income tax holiday of up to seven years, and exempts customs tax on products used in export processing zones, and provides for an exemption of capital gains tax, and value added tax refund, plus an accelerated depreciation of 50 per cent for the first year for new or used assets. Details on these incentives are in the annex to the law. 

According to Article 3, these incentives target investors in identified priority sectors - export, industrial manufacturing, energy, transport, ICT, financial services, and construction of low-cost housing, provided they fulfill ad hoc conditions. 

However, the list of investment priority sectors provided in Article 3 should have been expanded to cover the sectors, like of tourism and health. Research, mining, water resources, and waste recycling that were on the list of investment priority sectors in the old law were exclude in the new law. 

As far as non-fiscal incentives are concerned, the new investment law provides for some immigration incentives. 

In fact, any foreign investor and their dependents are entitled to "be issued with residence permit in accordance with relevant laws”. Foreign investors whose investment amounts to at least $250,000 have the right to recruit three foreign employees without any obligation whatsoever to demonstrate that the skills of these employees are lacking or insufficient on the labor market in Rwanda. 

Nevertheless, it is noteworthy that in relation to non-fiscal incentives the new law seems retrograde in two respects: One is rising the amount to be invested by a foreign investor from $100,000 to $250,000 to enjoy the right of recruiting expatriate staff. Under Article 20 of the old law, any foreign firm investing at least $100,000, had the right of hiring about three expatriate staff after "motivated application to the investment authority”. 

The other retrospective aspect is the removal of free initial work permit and residence visa for foreign investors and their expatriate staff. According to Article 21 of the old law, foreign investors and their expatriate staff were entitled to free initial work permit and a free residence visa valid for a period of one year, which could be renewed upon payment of ordinary fee. 

In addition, an investor who could deposit an amount equivalent to $500,000 on an account in any of commercial banks in Rwanda for a period of six months could acquire the status of permanent resident in Rwanda under the old law. This right is not provided for under the new law.

Furthermore, in comparison with other EAC partner states, like Uganda and Tanzania, the new investment law is not progressive in relation to non-fiscal incentives by expressly barring foreign investors from sourcing initial investment loans in Rwandan banks or financial institutions. 

The growing trend in global investment attraction strategy is countries to prefer ring long-lasting benefits for the host country’s economy, such as technological transfer and innovation rather than a mere attraction of foreign new capital. It would, therefore, forward-looking for Rwandan legislators to review this provision, and allowing foreign investors regulated access to funds from local banks. 

Is this gap bridged by Article 5 of the new legislation, which provides for equal treatment between foreign and local investors with regard to incentives and investment facilitation? 

This provision could be interpreted as giving a room to foreign investors to have access to loans from Rwandan banks as incentives and investment facilitation, just like Rwandan investors would have. 

It should always remembered that investment incentives are like dessert: it is good to have, but it does not help much if there is no meal. In the next issue, I will review the existing mechanisms that protect foreign investors in Rwanda.