Five highlights in Rwanda’s new investment code

A recent extraordinary cabinet meeting approved a draft law relating to investment promotion and facilitation which highlights a number of incentives for investors joining different productive sectors in the country, including Kigali International Finance Centre. The Rwanda Finance Limited led in the development of the incentives for the finance centre. The adjustment in the investment code which was preceded by two previous ones; 2005 and 2015 is also aimed at attuning ecosystem to the latest global trends and aligned with national objectives. Below are five key highlights. 1. Support to key priority sectors Part of the ambitions set out in the National Transformation Strategy includes transitioning from an agriculture-based economy to a service and knowledge driven economy. The new investment code, experts say is tailor-made to support increased investment with mention of key priority areas to spur capital flow. The new investment code has incentives for key priorities such as construction and development of Kigali Innovation City, creation and growth of the Kigali International Financial Centre (KIFC) as well as film production and post-production. The incentives are also targeted at incentivizing mining exploration. Jackson Rugambwa, a Tax Policy Analyst at Rwanda Finance Limited told The New Times that the incentives respond to the need to develop and expand key financial activities, attract cross-border investments and support priorities identified under National Transformation Strategy. “It also responds to creating decent and productive jobs, accelerate sustainable urbanization, increase industry contribution of financial sectors to GDP, increase domestic savings and position Rwanda as a hub for financial services to promote investments – in line with the establishment of the KIFC,” he added. 2. Reducing operational costs for firms Previously, a majority of investment incentives have been oriented towards reducing taxes paid by firms and hence retaining more profits. The model has often been critiqued as either being too expensive for government or not doing much to help new local firms emerge. The new investment code took that into account noting that firms often have to undergo a learning process through which they improve productivity before achieving competitiveness and profitability. The new code shifted some support to cost-based investment incentives that reduce operational costs and help accelerate productivity gains from learning-by-doing would be more effective for such priority sectors. Rwanda Finance Limited made sure to put focus on new type of activities in the country, with limited erosion on the tax income of Rwanda, but instead looking at increasing the tax income of the government on new activities. “For example, we are giving incentives to investment funds, knowing that only a few funds such as Iterambere managed by RNIT exist in the country, with no international funds being domiciled in the country,” Rugambwa noted. To avoid exploitation and misuse, the incentives are set on realization of certain conditions set in the investment law. “For instance, for investors to enjoy incentives they will be required to meet certain conditions like: an investment amount threshold, a value of company expenditure in Rwanda, certain percentage of company executives living in Rwanda, proof of a company physical office in Rwanda,” Rugambwa said. 3. Talent attraction incentives To serve towards Rwanda’s ambitions of setting up Rwanda as a Pan-African business hub, the investment code features aspects dedicated to attracting and retaining talents and skills from across the globe. These include dedicated visas for startup entrepreneurs, students graduating from leading Rwandan universities, remote work professionals, and high net worth individuals. The incentives also feature a more flexible work visa regime for employees of foreign investors and designated talent-based industries. 4. Incentives to support innovation and diversification of firms The approved incentives also aim at spurring innovation and diversification among medium sized investors with features such as a 150 per cent tax deduction for qualifying expenses on market expansion and internationalization activities. Local firms also will also enjoy tax deduction for research and development (R&D) and training expenditures to incentivize innovation and skills development. The code also features angel investment incentives for individual investors investing into startups. With the implementation of KIFC incentives, we have the expectation to create a competitive environment for new businesses and financial institutions to be domiciled in Rwanda. The incentives could, among other things, see Pan-African and multinational companies operating on the Continent benefit from the treasury services of Rwandan jurisdiction, therefore increasing foreign capital and currency under custody in Rwanda. “The local substance requirement of our incentives will ensure that a minimum number of jobs, including high paying positions, are created with the establishment of these entities,” the tax policy analyst said. 5. Flexibility According to officials of Rwanda Finance Limited, the investment Code was tailored to accommodate high-bandwidth public-private dialogue following engaging with the private-sector, rapidly seeking feedback and testing new hypotheses. Officials say that flexibility in the investment code seeks to adapt to the evolving priorities and new information. “The government and the Rwanda Development Board increasingly follow an agile approach to engaging with the private-sector, rapidly seeking feedback and testing new hypotheses, so the Investment Code would ideally accommodate this high-bandwidth public-private dialogue,” Rwanda Finance Limited said. The investment code development process involved assessment of sector needs as well as consultation with stakeholders such as Rwanda Bankers Association, Capital Market Authority, Central Bank, the Private Sector Federation, and Rwanda Development Board. The incentives were reviewed and approved by the National tax policy Committee. Tax Policy Committee Member institutions include; Ministry of Finance and Economic Planning, Ministry of Trade and Industry, Rwanda Development Board, Rwanda Revenue Authority, Ministry of Justice, Private Sector Federation and Rwanda Finance.

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Five highlights in Rwanda’s new investment code