As Benjamin Franklin said in one of his famous quotes that by failing to prepare, one will be preparing to fail. Equally, organizations that fail to plan for taxes may find themselves paying huge tax exposures which will impact business performance. Many businesses across the globe have had to pay huge tax penalties whilst others closed shop after receiving tax assessments by the tax authorities in their tax jurisdictions. Without proper tax planning, organizations will only tighten their noose, should the tax authorities conduct tax audits. Tax planning if done properly and diligently can save time and money for organizations. It is imperative to note that every single transaction that involves money inflows or outflows has tax implications to taxpayers and it requires an understanding of tax laws for appropriate tax treatment. In the next paragraphs, let us look at the elements that should provide the bedrock upon which the tax planning is premised especially from Rwanda’s perspective in accordance with the revised income tax law Nº 016/2018 of 13/04/2018. Tax laws are not static and change from time to time. This requires taxpayers’ constant awareness of any clues and changes. Information on any changes in tax laws is easily available and can be obtained from professional tax advisers, who can also train on tax laws. This information is also available at Rwanda Revenue Authority (RRA). Article 33 of income tax law Nº 016/2018 of 13/04/2018 requires related persons involved in controlled transactions to have documents justifying that their prices are applied according to arm’s length principle. This is the document that provides details of how related entities deal amongst themselves, whether those operating within Rwanda or in different tax jurisdictions as a case of multinationals. Rwanda Transfer Pricing rules are unique because they require local entities to have transfer pricing documentation. Ideally, if a company records intercompany transactions, whether in form of revenue, expenses, loans, technical assistance to mention but a few, the new law requires that Transfer Pricing documentation for such entities must be filed with Corporate Income Tax return to the RRA effective March 2019 for the taxpayers with fiscal year running January to December. Failure of which will attract significant penalties including but not limited to adjusting the cost of such affected transactions to the magnitude that RRA auditors may deem to be the ‘arm’s length’. In addition to the transfer pricing requirement, if the company projects annual revenue/turnover of Frw 400,000,000, it should plan to hire a Certified Public Accountant (CPA) approved by the Institute of Certified Public Accountant of Rwanda (ICPAR) to audit and certify its tax return before submission to the RRA as per Commissioner General Rule number 007/2009 of 07/12/2009. Not for profit organisations (NGOs) are not also spared by the revised income tax law. The new law obliges NGOs whose revenue exceeds the corresponding expenses at the end of their financial period, to declare and pay tax on the excess income, as per article 46 of the law no 016/2018 on income. In most jurisdictions, it is rare for NGOs to pay tax on excess income because they do not generate profits. The new law also requires entities exempted from corporate income tax including NGOs to submit to the Tax Administration their financial statements not later than 31 March following the tax period as per the article 46 of the same law. None compliance with the above will attract significant fines to the detriment of NGO’s performance. The provision on businesses seeking mergers and acquisitions for strategic, growth or any other reason in the old law, has been retained by this regulation. From a tax perspective, a company planning to change its shareholding up to the tune of (25%) loses its right to carry forward tax losses that it had accumulated before such a restructuring as per article 32 of law 016/2018 on direct taxes on income. Rwanda’s current investment code provides many incentives to investors. These incentives include but not limited to; Corporate Income Tax (CIT) holiday of up to seven (7) years, Exemption from payment of some type of taxes, immigration incentives, preferential CIT rate of zero or reduced CIT rate of fifteen percent among others. It is upon companies to understand this code and take advantage of and leverage on these incentives. To benefit, companies should invest in strategic sectors in Rwanda such as mining, financial services among others. Local employers who employ expatriates should plan for their taxes and pension especially when such obligations in their contracts rests upon the employer. The tax resident employer must include them on payroll and account for their taxes. If the period of employment in Rwanda is less than 12 months, they could choose to continue their pension contributions in their home countries. The new income tax law requires that withholding tax be charged on accruals if such accruals have been booked for more than six (6) months, regardless of whether payment was done or not. In summary, tax planning should be at the forefront of any business decision. It should also be on the checklist for businesses seeking to set up in Rwanda, due to the existence of different tax laws that keep changing from time to time. Existing businesses need to take measures like Tax Health Checks (THC) and periodic self-reviews to minimize tax exposure from RRA tax audits. Self-review may save a company up to 50 percent of understatement fines that it may incur if mistakes are discovered by RRA during tax audit. The writer is a tax expert at KPMG Rwanda
