What is reverse charge? Reverse charge is a transfer of liability to account for and pay Value Added Tax on imported services from the person making the supply (‘the supplier’) to the person receiving the supply (‘the recipient’).

Reverse charge is usually charged on services supplied by non-residents to resident consumers. In Rwanda, ‘Reverse charge’ is provided for under article 29 of the VAT Law No. 06/01/2001.

The law provides that payment of tax for imported services shall be made by a consumer by reverse charge and that it shall be due and payable at the time specified under article 20 of this law.

Note that article 20 of the above law explains when VAT is due; i.e. it is due in the following situations:
- When goods have been removed from the premises of the supplier;

- In case they are not removed from the premises of the supplier, it is when such goods are made available to the person they are supplied.

- In case of services, the point of supply is when such services are performed.

The above article also provides that the Commissioner General may issue an administrative rule, in relation to any particular case or class of cases to ensure effective application of the provisions of this paragraph.

Art 29 (ii) of the Ministerial Order Nº001 of 13/01/2003 providing for value added tax rules and taxation procedure provides that:

The VAT on reverse charge applying on imported services as provided under article 29 of the of the law, shall not be treated as deductible input tax on account of the consumer of such services.

This therefore means that resident consumers that receive services from non-resident supplier, will declare and pay VAT on such services that have been consumed or imported, but such VAT will not be claimed as input tax if such services would otherwise be fetched from the local markets in Rwanda.

Different countries have varying treatment of the reverse charge and the outcome of such, impact differently on different persons. It all depends on what the law of that country provides.

Some countries do not provide for the reverse charge in their VAT or GST Acts, while others do. Likewise, some states treat the ‘reverse charge as input tax and hence deductible, like in Australia and Germany, while others as Zambia, ‘reverse charge’ is not deductible, just as it is in Rwanda.

This encourages persons involved in the service sector in question or such other persons providing such services to work with local suppliers, by this, local industries are promoted; otherwise this would out compete them from business market.

As we pointed out, reverse charge can be claimed as in put tax for some states,  thus, laws of such countries permit  that reverse charge paid by consumers be credited as input tax.

It is arguable that this is due to the fact that the local industries in such countries have developed and need to protect them, while for our other countries such as Rwanda and Zambia, they acknowledge the significance to protect their industries; besides the European Union structure may not restrict free movement of goods and services, let alone labor.

Whether we continue to deny deduction of reverse charge, or permit its deduction as input tax, it rests with the policy makers taking into consideration a number of factors at stake.

We hope this article clarifies the concept of the reverse charge but if further information is required, you may contact us on the following address:

Tel:      0252595500
Email:   info@rra.gov.rw
Hotline: 3004/3005
Website: www.rra.gov.rw

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