Rwanda Revenue Authority (RRA) has urged taxpayers to submit early declarations for immovable property tax and rental income tax, emphasizing the importance of providing accurate values to prevent unnecessary penalties that may result from counter-valuation.

Taxpayers are urged to file their declarations and settle payments before the February 29, 2024 deadline, which was extended to accommodate the integration of new tax rates of immovable property tax and rental income tax. Initial deadlines are December 31 and January 31 respectively, in accordance with the law governing revenue sources and property for decentralized entities.

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Ernest Karasira, the Assistant Commissioner in charge of Provincial and Decentralized Revenue Division at RRA, urged taxpayers to fulfill their obligations ahead of time, rather than waiting until the last minute. The immovable property tax is levied based on the market value of a building and related plot, and is assessed and paid by the owner. When the land is without any construction, different rates apply, ranging from zero to Rwf80 per square meter of the surface of land; in accordance with its location.

Karasira emphasized the importance of accurately using the market value for immovable property tax, warning against property devaluation tactics aimed at reducing tax liabilities.

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"Some taxpayers inaccurately report the market value of their assets by either underestimating or providing arbitrary figures, such as Rwf1. They should engage a certified valuer for an accurate assessment. Alternatively, if the asset was purchased, taxpayers should declare the actual purchase price or construction cost. Failure to do so may lead to corrective actions by the tax administration, resulting in penalties," he said.

For a constructed plot, tax rates vary depending on the use of the property, ranging from 0.5% of both the building and related plot of land for residential use; 0.3% for commercial use, and 0.1% of the market value of both the building and related plot of land for industrial use, building and plot belonging to micro-enterprises and small business.

Special considerations are given to properties with multiple floors: a plot and a building for residential use of three floors are taxed at the rate of 0.25% of their market value; and 0.1% with more than three floors.

One building intended by the owner to be occupied as his or her dwelling and its annex buildings located in a residential plot for one family is exempted from immovable property tax. That building remains considered as his or her dwelling even when he or she does not occupy it for various reasons.

Karasira advised taxpayers who have reported inaccurate figures to modify their declarations, even for previous tax periods, as encouraged by the law.

Rental income tax

"It is the same case with the rental income tax; where we urge taxpayers to use accurate figures. We expect taxpayers to declare the exact amount received because we have observed instances where some of them report a lesser amount than what is written in the contract signed with tenants," he explained.

"When discrepancies are discovered, we rectify the declarations ourselves and impose penalties. The intention of the tax administration is not to punish taxpayers but to encourage timely and accurate declarations to ensure the correct amount of tax is paid.”

The rental income tax is charged on income generated by a person who is not subject to corporate tax from a rented immovable property. This includes buildings rented in whole, or in part, or any other rented immovable property in Rwanda.

It is determined by applying a 0% rate for an annual rental income from Rwf1 to Rwf 180,000; 20% for an annual rental income from Rwf180,001 to Rwf1,000,000 and 30% for an annual rental income above Rwf1,000,000.

The taxable rental income is obtained by deducting from the gross rental income 50% considered as the expenses incurred on maintenance and upkeep of the rented property. Bank interest payments for property loans are also considered in determining the taxable rental income.

The valuation process for immovable property

The value of immovable property is determined in a cyclical period of five years. It includes the market value of the building and the plot of land.

However, for self-assessment of tax on immovable property, the acquisition value and the construction value of a building remains acceptable until valuation by a certified valuer or by computerized mass appraisal system is effective.

If the immovable property was valued within the previous five years and no major changes in the buildings and structures, leading to an increase or decrease of the value by more than 20%, have occurred, this value is regarded as the market value. It is the same when the property was bought in the free market and no major changes of the value by more than 20%.

If the taxpayer’s self-assessment on the value of property is believed to be under-valuated, the tax administration will proceed to a counter-valuation.

Any taxpayer who fails to file a tax declaration on time and the one who files a false declaration are liable to a penalty of 40% of the tax due.

The tax not paid on time bears an interest of 1.5% on a monthly basis. Except the interest payable, a surcharge equivalent to 10% of the tax due must be paid. However, such a surcharge cannot exceed an amount of Rwf100, 000.