How lockdown has put non-residents in tax dilemma

In a bid to contain the spread of the coronavirus, on March 21, the Rwandan Government imposed a lockdown.

The lockdown measures imposed included the closure of borders and suspension of all inbound and outbound travels except for returning Rwanda citizens (who are subjected to a quarantine upon arrival).


Although the Government is gradually easing the lockdown restrictions, the prospect of global travel returning to pre-pandemic levels remains well out in the future.


This means that we now have people “stuck in Rwanda” who did not intend to be here beyond their initial planned duration (as well as people who did want to be here that cannot).


This state of affairs raises the question; what will be the tax implications of the lockdown measures on foreign tax residents stranded in Rwanda?

The main tax implication of lockdown measures on non-resident individuals trapped in Rwanda is the creation of a tax residency in Rwanda.

This derives from Article 4 of the Income Tax Act (Law nº 016/2018 of 13/04/2018) which states that an individual who stays in Rwanda for more than one hundred eighty three days in a twelve month period, either continuously or intermittently, is considered to be a resident in Rwanda for the tax period in which the twelve month period has ended.

The tax consequences of being deemed a Rwandan tax resident cannot be underestimated as Rwanda, having a worldwide tax system, such individuals would be subject to tax on their income including income derived from abroad as per Article 10 of the Income Tax Act which provides that a resident taxpayer is liable to personal income tax on the income from all domestic and foreign sources.

The above tax implication may be heightened by the fact that foreign residents deemed Rwandan tax residents may continue to be tax residents of their initial countries of tax residency, thus finding themselves in a “dual tax residency” situation. 

Of course the issue of dual tax residency may be resolved by Double Tax Treaties (DTT) “tie-breaker” rules if Rwanda has a DTT with the initial country of residency of an individual beached in Rwanda.

Consideration of Rwanda's individual tax residency rules indicates that foreign residents stranded in Rwanda run the risk of being deemed Rwandan tax residents with all the implications of this ‘new status’ coming into full force.

It is recommended that these individuals check with their tax advisors on what would be their tax exposure resulting from their unintentional breach of the 183 day threshold.

In equal measure, Rwanda Revenue Authority should consider issuing guidelines to ease concerns about tax residency for individuals trapped because of the coronavirus as tax administrations in other countries have done, and where possible (with due regard being had to the individual situation of each person) provide temporary relief by not taking into consideration those days during which leaving Rwanda had become impossible due to the coronavirus in determining whether the 183 day threshold had been breached.

The author is a corporate commercial and tax lawyer, and senior associate at ENSafrica Rwanda.


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