Have you ever been overwhelmed by your company's expenses while also worrying about its security and trading safety? Hopefully, by the time you finish this article you will have figured out what this query is about.
Some years ago, most business registration processes were done manually, as documented in Ministerial Order No. 02/09/MINICOM, articles 7,8,9, and 10.
Following that, the registration and application process was fully digitalized, so that anyone interested in trading in Rwanda can now apply and register their business online, and then obtain an electronic certificate of incorporation from the Rwanda Development Board (RDB) platform.
It’s commonly known that a sole trader is a self-employed individual who runs his own business and this trade has no legal or official identity that is separate from the business owner. A limited company, on the other hand, is separating a business from the owner as an individual where the legal procedures are being applied during the operations.
Working as an individual or sole trader in a business allows you to run your business the way you want. However, the most challenging issue for sole proprietors is ensuring asset security.
On the other hand, converting a sole trader to a limited company, by shifting the business structure from individual to legal, has a number of advantages, including asset security, tax savings, advocacy, and ease of partnership. Converting would allow sole proprietors to protect their properties, which would become distinct from that business, thereby reducing the risk of personal property loss.
There is, however, a need for the government’s intervention because the process of converting to a limited company remains hectic, which discourages sole proprietors.
Look at the advantages of doing business as a Limited Company. Shareholders can only lose the capital they have invested in the company, and raising capital to fund growth and development can be easier.
There are also numerous benefits of being a Limited company, such as tax deductions. A Limited company benefits from a special CIT rate in which companies and cooperatives that carry out microfinance activities and are approved by competent authorities pay CIT at 0% for five years from the time of their approval.
Other incentives include a 0% preferential corporate income tax rate for an international company with its headquarters or regional office in Rwanda, a 15% preferential corporate income tax rate for any investor, a corporate income tax holiday of up to seven years, exemption of customs tax for products used in EPZs, exemption of capital gains tax, value-added tax refund, and immigration incentives.
Switching to a Limited company also creates 'brand uniqueness'. It means your company is secure; no one else can use your brand without the company's license.
It also makes collaboration easier. Operating a Limited company instills confidence in those who work with you. It opens up more opportunities for partnership businesses. A limited company, like the sole trader structural settlement, is hierarchically legal rather in its own individual right, with a completely separate identification from its owners and boards of directors. As a result, businesses can enter into contracts in their own names and are liable for their own debts and liabilities.
Globally, limited companies have easier access to more lending opportunities than sole proprietors, and some commercial banks are more likely to lend funds to incorporated businesses.
While the benefits listed above are indisputable for those who want to convert from sole proprietorship to a Limited company, the conversion procedures remain a barrier that requires the government's attention and facilitation.
Different institutions such as Rwanda Revenue Authority (RRA), Rwanda Development Board (RDB), and Rwanda Public Procurement Authority (RPPA) should redefine the process. And there should be a quick turnaround when a taxpayer requests support, especially in conversion from a sole trader to a limited company. This can be done by deploying facilitators at local levels such as the cell, sector, etc so that there may be more prompt services.
The government's timeline for completing the switch from sole trader to a limited company should be shortened, allowing the Private Sector Federation-Rwanda (PSF) to freely collaborate with their members and thus spend less time with closed businesses during the switch implementation process.
The writer is the Business Services and Outsourcing Director at BDO Rwanda.