Trading stock is valued at a lower of cost price or market price on the last day of the tax period. Work in progress is valued at cost.
Capital gains tax is charged on the direct or indirect sale or transfer of shares or debentures. The capital gains tax is charged at the rate of 5% of the capital gain. The capital gain on sale or transfer of shares is determined as the difference between the acquisition value of the shares and their selling or transfer price.
Capital gains tax is required to be withheld and accounted for by the company in which the share sale or share transfer transaction occurred.
Capital gains tax is required to be declared and paid within 15 days following the month in which the sale or transfer of shares occurred.
However, the following transactions are exempted from capital gains tax:
- Capital gains from the sale or transfer of shares on the capital market.
- Capital gains from the sale or transfer of units of collective investment schemes.
- Capital gains resulting from restructuring of companies in respect of the transferring company.
There is a general capital gains tax law in Rwanda that provides that capital gains arising from the sale of commercial immovable property are subject to tax at the rate of 30%. However, capital gains arising from secondary market transactions on listed securities are exempt from taxation.
In addition, a capital gain arising from a corporate restructuring is exempt from tax in respect of the transferring company.
Corporate restructuring is defined to include the following:
- a merger of two or more resident companies into a separate company
- the acquisition or a takeover of 50% or more of shares or voting rights by number or value in a resident company in exchange for shares of the purchasing company
- the acquisition of 50% or more of the assets and liabilities of a resident company by another resident company solely in exchange of shares in the purchasing company
- the acquisition of the entire company’s assets so that its existence is replaced by the purchasing company, or
- splitting of a resident company into two or more resident companies.
Dividend income includes income from shares in any societies, other similar income that may be generated by all entities that pay CIT, as well as the outstanding balance after the taxation of income from the correction made by the tax administration in the transfer pricing.
Dividend income is subject to withholding tax (WHT) at the flat rate of 15%. Where there is a double taxation agreement (DTA) between the recipient country and Rwanda, a lower rate as per the DTA will apply.
If dividend distribution has been subjected to WHT, this becomes the final tax. Consequently, dividends paid between resident companies and subjected to WHT are not included in taxable income for CIT purposes.
Financial income includes income from loans, income from deposits, and income from guarantees. It also includes income from government securities and bonds, as well as from negotiable securities issued by the government, securities issued by public and private companies, as well as income from cash negotiable securities.
Financial income is subject to WHT at a flat rate of 15%. Where there is a DTA between the recipient country and Rwanda, a lower rate as per the DTA will apply.
However, the following financial interests are not subject to the 15% WHT:
- Interests on deposits in financial institutions for at least a period of one year.
- Interests on loans granted by a foreign development financial institution exempted from income tax under applicable law in the country of origin.
- Interests paid by banks operating in Rwanda to banks or other foreign financial institutions.
Royalty income includes:
- all payments of any kind received as a prize for the use of, or the right to use, any copyright of literary, craftsmanship, or scientific work, including cinematograph films, films, or tapes used for radio or television broadcasting
- any payment received from using a trademark, design or model, computer application, and invention patent
- the price of using, or of the right to use, industrial, commercial, or scientific equipment or for information concerning industrial, commercial, or scientific knowledge, and
- payments from use of natural resources.
Royalty income is subject to WHT at flat rate of 15%. Where there is a DTA between the recipient country and Rwanda, a lower rate as per the DTA will apply.
Rental income includes all revenue derived from rent of machinery and other equipment, including agriculture and livestock equipment, in Rwanda. This is reduced by 10% of gross revenue deemed expenses, interest paid on loans, and depreciation expenses.
Resident companies and enterprises are taxed on their worldwide income. However, a foreign tax credit is granted in respect of taxes paid on the foreign income, subject to the limit of the tax that would have been paid in Rwanda on the same income.
There are no provisions in Rwanda for tax deferral of income earned abroad.