Tax Guide for US Expats Living and Working in Rwanda
Who Is Liable For Income Taxes in Rwanda
Residents are subject to tax on their worldwide income, while nonresidents are subject to tax on their Rwandan-source income only.
Income subject to tax
Employment income. Employment income includes the following:
- Wages and salaries
- Vacation pay
- Sick pay
- Payments instead of vacation
- Directors’ fees
- Commissions
- Bonuses
- Gratuities
- Entertainment or other allowances received for employment
Employment income also includes all benefits in kind, including employer-provided cars, housing, loans at interest rates lower than the central bank lending rates and benefits provided to employees’ relatives by employers.
Self-employment and business income. Business income includes the following:
- Trading profits
- Gains derived from disposals of business assets, shares of profits or profits from partnership interests
- Professional, technical, management and other fees
Investment and other income. A final withholding tax at a rate of 15% is imposed on the following:
- Dividends other than intercompany dividends
- Interest
- Royalties
- Technical, management and other service fees
- Performance fees paid to athletes and musicians
- Lottery and gambling proceeds
Individual property owners who earn rental income are subject to rental income tax.
Capital gains.
Capital gains derived from the disposal of business assets, excluding commercial buildings, are aggregated with other income and are taxed at the rates. Gains derived from the disposal of commercial buildings are subject to a capital gains tax at a rate of 30%.
Deductions
Personal deductions. Individuals who earn employment income may claim a tax deduction for their contributions to qualified pension funds. The maximum annual deduction is the lower of 10% of their gross employment income or Frw 1,200,000.
Business deductions. Business expenses are deductible to the extent they are incurred in the production of income. Bad debts incurred in the production of taxable income are not deductible until they are written off following a court ruling attesting that the debts are unrecoverable.
Fixed assets qualify for an annual capital allowance deduction. The deduction may be calculated using the straight-line or declining-balance methods at rates ranging from 5% to 50%, depending on the type of asset.
Relief for losses. Losses may be carried forward for five years to offset future profits of businesses. Losses may not be carried back except with respect to construction projects.
B. Other taxes
Estate and gift tax. Estate and gift tax is not levied in Rwanda.
Net worth tax. Net worth tax is not levied in Rwanda.
C. Social security
The Caisse Sociale du Rwanda, which is Rwanda’s statutory social security fund, provides employees with retirement benefits.
Employees contribute 3% of their total annual salaries excluding transport allowance, and employers contribute an amount equal to 8% of each employee’s total salary excluding transport allowance.
E. Double tax relief and tax treaties
In accordance with tax treaties, residents may credit foreign taxes paid on foreign-source income against Rwandan tax payable in accordance with tax treaties. Rwanda has entered into double tax treaties with Belgium, Mauritius and South Africa.
To learn more about the history, culture, economy and other information about Rwanda
We have been preparing US income tax returns for US Citizens and permanent residents living in Rwanda for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Rwanda and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Rwanda.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email