A bilateral double taxation avoidance treaty between Rwanda and Korea is set come into force Thursday, December 19, Korea Times reports. The agreement, scheduled to take effect Thursday, allows the source country where the business is conducted to impose taxes on income generated from business activities, according to Korea’s finance ministry.

The double taxation avoidance agreement (DTAA) was signed on September 13, 2023, on the side-lines of the seventh edition of Korea-Africa Economic Cooperation (KOAFEC) Ministerial Conference, in Busan, South Korea. Under the treaty, the maximum tax rate on dividends, interest and royalties will be capped at 10 percent. Additionally, capital gains from the transfer of shares will be exempt from taxation in the source country, except in specific exceptional cases.

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The agreement will, in addition to attracting Korean investors to Rwanda, play an invaluable role in encouraging the outflow of investment by ensuring protection from discriminatory tax measures, providing an attractive withholding tax rate and a robust framework for dispute resolution.

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"Signing of this Double Taxation Avoidance Agreement represents a remarkable milestone in our economic cooperation history,” Richard Tusabe, the Minister of State in charge of National Treasury, said last year.

The DTAA is in alignment with Rwanda’s medium-to-long-term objective of positioning the country as a thriving financial hub. It underscores the importance of establishing a comprehensive treaty network, which is essential for future growth and prosperity.

With this DTAA, Rwanda has now signed 17 agreements with several others under negotiation. DTAAs continue to boost the inflow of investments and trade from treaty partners, with the bulk of investors to Rwanda coming from countries such as Turkey, Qatar, UAE, Mauritius, Morocco, South Africa, Singapore and Jersey, among others.

Rwanda has been negotiating, and continues to negotiate, with countries that have sound tax systems to avoid treaty shopping, a practice commonly used by multinational enterprises to shift profits for foreign investors routing investments through low tax jurisdiction hubs.