Rwanda makes major changes in new income tax law

The Government of Rwanda recently made a major overhaul of the income tax structure, introducing new taxes and redefining existing tax regimes. The new income tax law, which was gazetted last week, aims to bring about significant changes that will impact various sectors of the economy. Dieudonne Nzafashwanayo, Partner at ENSafrica, spoke to CNBC Africa's Julius Bizimungu to shed more light on the implications of the new tax law. The changes in the income tax law cover a wide range of areas, from the taxation of new business structures to the introduction of a general anti-avoidance provision. One of the key changes introduced by the new law is the taxation of new business structures, specifically partnerships. Under the new law, partnerships will be treated as tax-transparent entities, meaning that the profits incurred by a partnership will be taxed at the level of the partners, rather than at the partnership level. This change aims to provide clarity and transparency in the tax regime for partnerships, which are a preferred vehicle for private equity funds. Additionally, the new law introduces changes to the taxation of protected state companies, giving investors the option to choose between having the protected state company taxed as a separate entity or having each asset within the company treated as a taxable entity. The law also brings gaming companies under the regular corporate tax regime, subjecting them to a tax rate of 30 percent, similar to other companies. Another significant change is the adjustment to the taxation of personal employment income, with the introduction of a new tax bracket and increased exemption limits. The new law also addresses funding arrangements and financing transactions between related companies, extending limitations on deductible interest on loans between related parties to foreign exchange losses. Furthermore, the introduction of a general anti-avoidance provision empowers revenue authorities to disregard transactions lacking commercial substance or conducted solely for obtaining tax benefits. This provision aims to combat aggressive tax avoidance schemes and protect Rwanda's tax base. The new income tax law also includes provisions related to permanent establishment taxation, capital gains tax, and withholding tax on sales. Overall, these changes are expected to have significant implications for businesses operating in Rwanda, as they seek to streamline the tax regime and ensure compliance with the law. The government's decision to implement these changes comes as part of its efforts to modernize the tax system and enhance revenue collection. By aligning the tax laws with international best practices, Rwanda aims to create a more conducive environment for investment and economic growth. The introduction of the general anti-avoidance provision is particularly noteworthy, as it signals Rwanda's commitment to combat tax evasion and uphold fiscal transparency. As businesses navigate these changes, there will likely be a period of adjustment and interpretation to ensure compliance with the new requirements. Overall, the new income tax law represents a significant step forward in Rwanda's tax reform agenda, setting the stage for a more efficient and effective tax system.