Effective from 31 March 2023, Rwanda has a new law on tax procedures (see here) as part of tax reforms the country has embarked on in the last few years.

The first change this new law introduces relates to the maintenance of books of accounts and records. The repealed law (see here) provided that taxpayers must keep books of accounts and records for five years, but this has under the new law been increased to 10 years. The new law further provides that such records can be accessed and shared electronically, and this was not clear in the repealed law.

The new law also requires taxpayers in the real tax regime to file their tax declarations along with transfer pricing documentation prepared in accordance with the applicable legislation. This new requirement does however not seem to be aligned with Rwanda's general rules on transfer pricing which provides that only the controlled transactions schedule must be filed along with the taxpayer's income tax declaration. For other documents, taxpayers must ensure that they are prepared and available before the deadline for filing their income tax return.

The master file needs to be submitted only once with the initial tax declaration, and the taxpayer is obliged to make subsequent filings only if the master file is revised or updated. The local file is only submitted upon the request of the tax administration and the country-by-country report is filed not later than 12 months after the last day of the reporting fiscal year of the multinational enterprise group the taxpayer is part of.

Further, under the same rules, not all taxpayers in the real tax regime are required to prepare transfer pricing documentation. We expect the tax administration to provide clarification regarding the interaction between article 16 of the new law and the general rules on transfer pricing.

Under the new law, the documents to be maintained by withholding agents have been amended. Going forward, in addition to the records that were provided for under the repealed law, if payments are made to residents of countries that have concluded double tax treaties ("DTTs") with Rwanda, and a reduced withholding tax rate under the relevant DTT is applied, the withholding agent must keep a tax residence certificate of the payee issued by the competent authority of the other DTT contracting state.

Several changes have also been introduced about tax audits including prohibiting taxpayers to make any changes to their declarations or books of accounts for the period (s) to be covered by the audit following receipt of an audit notice unless authorised by the tax administration, and introduction of new types of tax audit i.e. transfer pricing and tax refunds audits which have also been added among the situations where the tax administration is permitted to depart from the unique audit principle and conduct a comprehensive tax audit. Instances under which the tax administration is allowed to do assessment without notice have also been amended. Under the new law, in addition to the case of tax evasion, the tax administration may issue an assessment without notice in case the taxpayer does not cooperate with tax audit officers or fails to provide the requested explanations.

Other changes in the new law are those related to the burden of proof. In the case of an assessment without notice, the burden of proof will rest on the shoulder of the tax administration which was not the case under the repealed law. For a transfer pricing audit (a new type of audit), the burden of proof is on the taxpayer, something that will need to be clarified by courts. The taxpayer's burden of proof should be said to have been discharged once the taxpayer has prepared documentation demonstrating that the terms and conditions of its controlled transactions are consistent with the arm's length principle ("ALP").

After this taxpayer's burden is discharged, the burden should shift to the tax administration which would have to prove, for instance, that the transfer pricing method and information used by the taxpayer are not reliable, and generally the controlled transaction was not consistent with the ALP.

The new law has also revised penalties and late payment interest that were provided for by the repealed law. For instance, the late payment interest rate has been reduced from 1.5% to 0.5% where the delay does not exceed six months and 1% where the delay is between six months and 12 months. The interest rate of 1.5% has been maintained in case the delay is more than 12 months. Administrative fines for taxpayers who declare and delay paying the taxes declared by a period not exceeding 30 and 60 days have been respectively slashed by 50% (i.e. from 10% to 5% and 20%-10%).

The new also provides for a stay of penalties and accrual of late payment interest in case the tax administration owes a certain amount to the taxpayer, in which case late payment interest and penalties are only stayed in relation to tax amount equal to the taxpayer's tax credit. A new tax offence has also been introduced, and that is the fraudulent claim of tax refund which will be punishable by a term of imprisonment between two and five years and a fine equivalent to a hundred percent of the tax amount unduly claimed.

The above are not the only changes introduced by the new law. Other changes include:

  • the stay of recovery of taxes in case of administrative appeal where the taxpayer has paid the undisputed tax;
  • the possibility of imposing the obligation to withhold VAT on persons other than procuring entities under public tenders;
  • the taxpayer's right to sell the seized property to clear due taxes; and
  • the tax administration power to access information held by any person that may facilitate the implementation of the law on tax procedure, other tax laws in force and all tax treaties ratified by Rwanda.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.