Personal Income Tax: Exempt income and employer, employee responsibilities

In the previous articles, we noted that a person or an employee who earns less than frw 30,000 per month is exempted from personal income tax. We also highlighted the modalities under which medical allowance given to employees is exempted.

In addition to these exemptions, the following payments are exempted from personal income tax;

The discharge or reimbursement of expenses incurred by the employee is exempted provided that the expenses were wholly and exclusively for business activities of the employer or are those that are deducted or would be deductible in calculating the employee’s income from all his or her business activities.

This means that when an employee is on official duties and incurs expenses for the business he/she is not taxed when the company reimburses his money.

Retirement contributions made by the employer on behalf of the employee to the state social security fund and pension payments made under the state social security system are exempted from personal income tax. Retirement contributions made by the employer on behalf of the employee, and/or Contributions made by the employee to a qualified pension fund to a maximum of 10 per cent of the employee’s employment income, or  Rwf1,200,000 p.a., whichever is the lowest, is exempted from personal income tax.

Non citizens of Rwanda may not pay personal income tax in Rwanda. The income tax law states that employment income received by an employee who is not a citizen of Rwanda is exempted.

This is based on the grounds that the income is obtained from a foreign government or a Non Profit Organization under the agreement signed by the Government of Rwanda and this income is received for the performance of aid services in Rwanda. 

Employment income received from an employer who is not a resident in Rwanda by a non-resident individual is also exempted from personal income tax (PAYE) provided the income is for the performance of services in Rwanda unless such services are related to a permanent establishment of the employer in Rwanda.

In addition to exempt income, persons are also exempted from personal income tax.  The income tax law states that any foreigner who represents his or her country in Rwanda is exempted from personal income tax in Rwanda. 

Any other foreign national employed in any Embassy, Legation, Consulate or Mission of a foreign state performing state affairs, and who owns a diplomatic passport does not pay personal income tax (PAYE) in Rwanda. 

Any non-citizen individual employed by an international organization that has signed an agreement with the Government of Rwanda is exempted from pay as you earn tax.

Employer/employee responsibilities

An employer must register with the RRA by completing the appropriate Registration Form for pay as you earn tax. Individual employers must complete the Individual Enterprise Registration Form RRA TRO RGI. 

 Companies must complete the Non-individual Registration Form RRA TRO RGC.1.

Within 15 days following the end of each month the employer must file a tax declaration and pay the tax to the RRA. The employer is also required to transmit to the employee a statement indicating tax withheld.

Before the 15th day of January each year, employers shall compute the tax due from each employee for the year that has ended. Employers with no employees that earn more than Rwf30,000 a month do not submit monthly declarations. They submit annual declarations only, showing nil in the tax due column.

Employees that declare and pay themselves shall pay any unpaid amount during annual declarations.
    
Author is a Tax Manager at KPMG Rwanda
E-mail: amusinguzi@kpmg.com
Tel: +250252579790/0788507675.