Let’s understand the taxation system of Rwanda into two categories, namely: domestic taxes and custom taxes.

Domestic taxes are taxes that are levied on economic activities, goods, services, or income generated within a country’s borders while custom taxes are taxes imposed on goods when they are imported into or exported out of a country.

Domestic taxes are further divided into decentralised taxes and centralised taxes.

Decentralised taxes are levied and collected at district level, hence the common name "District taxes.” They include the trading licence, Immovable property tax, rental income tax, and market fees. Centralised taxes are levied and collected by the Rwanda Revenue Authority (RRA). These taxes include: Personal income tax, Corporate income tax, value added tax, pay as you earn, excise duty, and withholding tax.

The focus of this article is centralised taxes. Below is a detailed breakdown of each tax under the centralised category:

1. Domestic centralised taxes

Centralised taxes in Rwanda apply to individuals and entities operating within the country's borders. They include Personal income tax, Corporate Income tax, Value Added tax, Pay as you earn, Excise duty and Withholding tax.

1.1. Corporate income tax (CIT)

Corporate income tax is collected from businesses and companies operating within Rwanda. The general CIT rate is 28%. However, incentives are provided for companies listed on the capital market:

1. 20% CIT if at least 40% of shares are sold to the public.
2. 25% CIT for companies that sell at least 30% of shares to the public.

1.2. Personal income tax (PIT)

According to RRA, personal income tax rates fall into three regimes: The lump sum, flat and real regime.

Lump sum regime is for small enterprises whose annual gross revenue ranges from 12 million to 20 million Rwf, and are taxed 3% of the total revenue annually.

The real regime applies to those who can do their books of accounts to determine the taxable revenue after subtracting deductible expenses (expenses legally declared in EBM). The real regime is usually adopted by companies, medium and large-scale businesses. A small business can also adopt this regime for an advantage of loss consideration with Rwanda Revenue Authority.

Individuals carry an obligation to pay personal income tax depending on annual profit range at the following rates:

1. RWF 0–720,000 profit is taxed at a rate of 0%;
2. RWF 720,001–1,200,000 profit is taxed at a rate of 10%;
3. RWF 1,200,001–2,400,000 profit is taxed at 20%;
4. RWF 2,400,0001 and more taxed at 30%.

For casual laborers, a special rate of 15% applies on income above RWF 60,000.

Micro-enterprises following their annual turnover must pay the flat amount of tax as per the following:

Companies with annual turnover of from FRW 2,000,000 to FRW 4,000,000 pay FRW 60,000

Companies with annual turnover of from FRW 4,000,001 to FRW 7,000,000 pay FRW 120,000

Companies with annual turnover of from FRW 7,000,001 to FRW 10,000,000 pay FRW 210,000

Companies with annual turnover of from FRW 10,000,001 to FRW 12,000,000 pay FRW 300,000

The provisions are not applicable to an individual who exercises a liberal profession.

Without prejudice to the right to be governed by the real profit tax regime, the activities of road transport of persons and goods are imposed a flat amount of tax determined in accordance with the type, number of persons that may be carried or loading capacity.

1.3. Pay As You Earn (PAYE)

PAYE (Pay As You Earn) is a tax that employers take from employee salaries. They send this tax directly to the government on behalf of employees. It must be declared and paid by the 15th of the following month. It is levied according to the following structure:

1. Income from RWF 0 to 60,000 is taxed at 0%.
2. Income from RWF 60,001 to 100,000 is taxed at 20%.
3. Income exceeding RWF 100,001 is taxed at 30%.

1.4. Value added tax (VAT)

Value added tax is levied on the sale of goods and services. Businesses with annual turnovers above RWF 20 million must register for VAT. The tax rates stand at 0% and 18%. VAT must be declared by the 15th of the month following the taxable event. For small businesses, VAT declarations can be made quarterly if the annual turnover is below RWF 200 million.

1.5. Withholding taxes

Withholding taxes help collect part of the income tax in advance. The following withholding tax rates apply:

1. 15% on other payments by resident individuals or entities.
2. 3% on payments made by public institutions.
3. 5% on imports, which is paid at customs before goods are released.

1.6. Excise duties

Taxes imposed on specific goods produced and consumed domestically, or sometimes on imported goods, often considered harmful or luxury items (e.g., alcohol, tobacco, fuel).

Excise tax is imposed on the manufacturing or importation of certain commodities, mainly soft drinks, cigarettes, alcohol, fuels, and lubricants, primarily at the manufacturing stage. The following rates apply in respect of products and services for which excise duty is applied:

1. Juice from natural fruits or vegetables: 5%.
2. Soda, lemonade, and non-natural juices: 39%.
3. Beer: 30% to 60%.
4. Wine, brandies, liquors, and whisky: 30% to 70%.
5. Cigarettes: 36% of retail price of a pack of 20 rods and RWF 30 per pack.
6. Electronic cigarettes: RWF 30,000 per unit.
7. Cigars and similar products containing tobacco or tobacco substitutes: 160%.
8. Cartridge with liquid for use in electronics: RWF 24,400 per unit.
9. Telephone communication: 10%.
10. Premium (excluding benzene) fuel and gas oil: RWF 183/litre on premium fuel and RWF 150/litre on gas oil.
11. Lubricants: 37%.
12. Sweets and chewing gum: RWF 322/kg.
13. Chocolate: RWF 1,930/kg.
14. Powdered milk: 10%.
15. Vehicles with an engine capacity of above 2500cc: 15%.
16. Vehicles with an engine capacity of between 1500cc and 2500cc: 10%.
17. Vehicles with an engine capacity of less than 1500cc: 5%.
18. Electric and hybrid vehicles: 0%

The following goods are exempt from excise duty:

1. Goods for charitable organizations.
2. Vehicles assembled in Rwanda.
3. One personal vehicle of former diplomats returning from foreign diplomatic missions or an international organization.
4. One vehicle of Rwandan refugees or returnees from a foreign country who fulfill exemption conditions set forth under the Customs Law.
5. Vehicles of the following categories: minibus and bus that can carry not less than 14 persons, lorries and single cabin pickups manufactured to carry goods, refrigerating vehicles, tourist vehicles, ambulances, and vehicles designed for persons with disabilities.
6. Products specifically manufactured for export.
7. Products sold to duty free shops and other specific persons legally determined.

For more details, you can visit here.

Now that you have a comprehensive understanding of Rwanda's taxation system. You can stay on the right side of the law to confidently avoid fines, penalties, and any issues that may arise from non-compliance. Stay informed, stay compliant, and contribute to the country's growth through responsible tax practices.

The author is a Usability Specialist & Technical Writer at KudiBooks, a cloud-based accounting software and payment solution.