Corporate - Income determination

Last reviewed - 18 July 2023

Inventory valuation

Trading stock is valued at cost, however, damaged stock is valued at lower of cost price or market price on the last day of the tax period. Work in progress is valued at cost.

Capital gains

CGT is charged on the direct or indirect sale or transfer of shares. The CGT 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.

CGT is required to be collected and remitted to the revenue authority by the company in which the share sale or share transfer transaction occurred.

CGT 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 listed shares and other securities on the capital market.
  • Capital gains from the sale or transfer of shares or units of collective investment schemes.
  • Capital gains resulting from restructuring of companies.

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.
  • The acquisition or transfer of 50% or more of the assets and liabilities of a resident company by another company.
  • The acquisition or transfer of the entire company’s shares, assets or liabilities so that its existence is replaced by the purchasing company.
  • Splitting of a resident company into two or more resident companies.

Note that capital gains arising from the sale of commercial immovable property are subject to tax at the rate of 30%.

Dividend income

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 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. Dividends paid between resident companies are exempt to WHT and are not included in taxable income for CIT purposes.

Financial income

Financial income includes income from loans, debentures or other debt securities; income from deposits; income from guarantees; and income from government securities, negotiable securities issued by the Government, securities issued by companies or other persons 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 (1) 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 or deposit-taking micro finance institutions operating in Rwanda to banks or other foreign financial institutions.

Royalty income

Royalty income includes all payments of any kind received or receivable:

  • on the use of or the right to use any copyright of literary, craftsmanship or scientific work including cinematographic films, films or tapes used for radio or television broadcasting
  • on the use, right to use or exploitation of a trademark or a trade name, design or a model, a computer application, a software and a patent
  • as the price or consideration of using, or of the right to use industrial, commercial or scientific equipment or for using information concerning industrial, commercial or scientific knowledge or formula, and
  • on the right to exploit or explore natural resources.

Royalty 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.

Rental income

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 as deemed expenses, interest paid on loans and depreciation expenses.

Foreign income

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.