In principle, any person who derives income from Rwanda should pay taxes in Rwanda. There are suppliers of goods and services to beneficiaries in Rwanda who are not registered with Rwanda Revenue Authority (RRA).
All these categories of people should pay Withholding tax also known as WHT.
Withholding tax is of three types. The first is paid by the suppliers of services to Rwanda who are not registered with RRA.
The withholding agent who is the consumer of services in Rwanda is supposed to charge 15 per cent upon payment to the suppliers and remit the tax to RRA within 15 working days from the date tax is withheld. This also applies to local suppliers who are not registered with RRA.
There are many informal businesses in Rwanda and these are not registered with the RRA. In the event a registered trader is supplied with goods and services from a person not registered with the RRA, he should as well withhold 15 per cent upon payment.
Sometimes suppliers want their payments net of taxes. It is not accepted to gross it up because the final burden of the withholding tax rests on the supplier of goods or services.
In the event the supplier objects to payment of 15 per cent, the consumer of the service will pay the tax to RRA. This tax will not be treated as an expense in the books of accounts of the beneficiary of the services for tax purposes.
A withholding tax of 15 per cent is also levied on services such as dividends except intercompany dividend, interest, royalties, service fees including management fees and technical service fees, lottery and other gambling, performance payments paid to an artist, a musician or a sportsperson irrespective of whether paid directly or through an entity that is not resident in Rwanda.
Tax withheld by the agent is remitted to RRA within 15 working days from the date the tax is withheld, failure to do that attracts penalties and interests for late payment.
Another type is 5 per cent withholding tax paid at customs upon importation of goods by importers who do not have tax exemption certificate (“quitus fiscale”). This certificate is issued by the Commissioner General, RRA.
The 5 per cent withholding tax is an advance payment of Corporate Income Tax and is claimable during filing annual corporate income tax returns. For final importers/consumers of goods, 5 per cent withholding tax on importation is not claimable. Organisations exempted from business profits do not pay 5 per cent and 3 per cent withholding taxes.
The other type of withholding tax concerns those who supply goods to Government through public tendering. Three per cent is retained by the Government paying agency as withholding tax on public tender.
Some transactions attract withholding tax at reduced rates. These are dividends and interest income on securities listed on capital market and interests arising from investments in listed bonds with a maturity of 3 years is reduced to 5 per cent when the person who withholds is a resident taxpayer of Rwanda or of the East Africa Community.
A withholding agent must maintain and make available to the tax administration records showing payments made and amount withheld and paid.
These records should be kept for at least ten years after the end of the tax period related to the records.
In the next articles, we shall look at withholding tax on Pay As You Earn and the modalities on how it is remitted to the tax administration.
Author is a Tax Manager at KPMG Rwanda