This law replaces the previous VAT Law No 37/2012, which had been in place since December 2012. The new VAT Law introduces comprehensive changes to the country’s taxation framework to promote fiscal alignment with the recent Income Tax Law (ITL 2022) and the Tax Procedure Law (TPL 2023.
The reforms are in line with the developments within the Kigali International Financial Center (KIFC) initiative and aim to improve tax compliance and expand the tax base in Rwanda.
This article aims at providing an in-depth overview of the key provisions and changes brought about by the VAT Law 2023
Defining New Terms
The VAT Law 2023 introduces new terms and amends existing ones to provide clarity and alignment with current practices. Notable definitions include "Exported service," "Hybrid automotive vehicle," "Final consumer," "Goods," "Person," and "Liberal Professional."
Taxation of Online Supplies
A new paragraph has been added to the VAT Law 2023, bringing "online supplies" under taxation.
This change aligns with the ITL 2022, which included digital services as taxable sources of income.
The specific rules and procedures for taxing digital services under VAT will be detailed in an Order of the Minister.
Responsibility for Paying VAT
The new law expands the list of entities responsible for paying VAT. While previously, VAT obligations primarily rested with VAT-registered individuals, the updated law now specifies that every VAT-registered taxpayer must charge and account for the tax.
Additionally, public procuring entities are now obligated to withhold VAT on payments to successful VAT-registered bidders.
Taxable Goods and Services
The VAT Law 2023 clearly outlines what constitutes taxable goods and services. It covers goods supplied in Rwanda, services provided within Rwanda or to residents of Rwanda, assets of a person used in business that are sold, and more. Importation of goods or services is also subject to VAT unless explicitly exempted.
Zero-Rated Goods and Services
The new law expands the list of goods and services subject to a zero-rated (0%) VAT rate. Notable additions include exported goods and their auxiliary services, commission fees for all-inclusive tour-package booking services, minerals sold domestically, and locally assembled electric and hybrid vehicles.
Exempted Goods and Services
The list of goods and services exempted from VAT has been expanded to include items such as sanitary pads, leases of movable property by licensed financial institutions, and agricultural insurance services.
VAT Point Determination
The VAT Law 2023 incorporates the date on which a taxpayer requests deregistration from VAT as a determining factor for the VAT point.
Acquisition of Foreign Services
Additional procedures have been introduced for the importation of foreign services, requiring taxpayers seeking such services to request authorization from the Minister. Guidelines for this process will be provided in an Order of the Minister.
Time for Importation of Goods and Services
The new law clarifies that goods are considered imported when they enter Rwandan territory according to customs law, while services are considered imported when the importer receives them.
Entitlement of Input Tax
To claim input VAT on taxable goods and services, taxpayers must have paid output tax to the Tax Administration. The law reduces the time limit for input tax entitlement to 12 months from the previous two-year limit.
Restrictions on Input Tax
The VAT Law 2023 expands the items eligible for restricted input tax to 40% of the value added tax paid on taxable goods and services in a "business activity."
Post-Sale Adjustment for Unrecoverable Debt
To claim a refund for unrecoverable debt, an individual whose debt is less than FRW 3m must prove they made reasonable efforts to recover the debt over a three-year period.
Amendment of Original VAT Return
The law outlines procedures for amending an original VAT return after the deadline, requiring taxpayers to apply in writing to the Commissioner General.
Value Added Tax Refund
Input VAT refundable as per the law must be claimed in its taxable period.
Rewards for Final Consumers
The VAT Law 2023 introduces incentives for final consumers who present the Tax Administration with electronic invoices. The details and value of the reward will be determined through a Ministerial order.
Enterprise and Branch Registration
The law mandates that multiple branches be registered under a single Taxpayer Identification Number (TIN) for VAT purposes, aligning them with the main company.
When expressing or paying amounts in foreign currencies, the law specifies methods for conversion into Rwandan francs to ensure uniformity and fairness.
Tax Refund for International Organizations
International organizations holding meetings and conferences in Rwanda may be eligible for a refund on goods incurred or imported during these events, subject to authorization.
The VAT Law 2023 came into effect on September 14, 2023. All concerned taxpayers are advised to ensure compliance with the new provisions and align their tax practices accordingly to avoid any disruptions or penalties in light of these significant changes to Rwanda’s tax system.