Registering for Tax; Rights, Obligations and Sanctions

1Why this matters

A business that is not registered cannot operate legally, cannot bid for public tenders and can be closed. Many small businesses in Rwanda lose money to fines and interest simply because they filed late or kept no records. Knowing your obligations protects your profit, and knowing your rights protects you when you disagree with the tax office.

2Registering for tax

1. Register the business with the Office of the Registrar General at the Rwanda Development Board (RDB) within 7 days of starting. This can be done online.
2. Receive a TIN (Taxpayer Identification Number). It identifies you in every tax declaration and must appear on your business documents.
3. Trading licence tax: declare and pay it for each business activity by 31 January every year (new micro and small businesses are exempt for their first two years).
4. VAT: register when taxable turnover passes 20,000,000 Frw in the previous year or 5,000,000 Frw in the previous quarter, within 7 days; or register voluntarily.
5. Employees: if you employ workers, withhold PAYE and pay it to RRA every month.
6. Income tax: file the annual declaration by 31 March of the following year.

3Obligations of a taxpayer

• Register and use the TIN on declarations and business documents.
• Keep books of accounts and records (RRA's guidance says for ten years).
• Issue EBM receipts for taxable sales; a VAT-registered business must also display its VAT certificate where it trades.
• File declarations on time, even when there were no sales or no tax is due.
• Pay the tax due on time.
• Cooperate with RRA during audits and give the information requested.

4Rights of a taxpayer

RRA's guidance lists, among others, the right to:

• calculate your own tax using the law;
• be heard before a proposed correction of your tax is finalised;
• appeal to the Commissioner General of RRA;
• request an amicable (friendly) settlement;
• take the case to court if the dispute is not settled;
• be represented by a qualified professional in dealings with RRA.

5Sanctions

The rates below are from RRA's published guidance (2023). Laws change, so check the current figures before relying on them.

• Interest for late payment: 0.5% of the unpaid tax for each month of delay in the first six months (1% a month from six to twelve months; 1.5% after twelve months). Every month that has begun counts as a full month.
• Fine for failing to declare and pay on time: 20% of the tax if up to 30 days late, 40% from 31 to 60 days, 60% beyond 60 days.
• Not issuing an EBM receipt (VAT-registered seller): ten times the VAT evaded, twenty times if repeated within two years.
• Tax evasion (forged accounts, hidden sales, false “no sales” declarations): a crime punishable by two to five years in prison.
• Extra sanctions: closure of the business for up to 30 days, a ban from public tenders, or publication of the offender's name in the media.

A taxpayer who voluntarily discloses unpaid tax and pays it before being notified of an audit can have the interest and penalties waived.

Worked example: the cost of lateness

Written by Ganzaa, using the rates above. Gatete owes 200,000 Frw of VAT for a quarter. He neither declares nor pays on the due date, and finally declares and pays 20 days late.

1. Fine for failing to declare and pay on time (up to 30 days): 20% of 200,000 = 40,000 Frw.
2. Interest: 20 days is within the first month, which counts as one full month: 0.5% of 200,000 = 1,000 Frw.
3. Total paid = 200,000 + 40,000 + 1,000 = 241,000 Frw.

Twenty days of delay cost Gatete 41,000 Frw, more than 20% extra, for nothing.

Practice