Tax incentives

The government of Tanzania is providing a wide range of tax incentives to businesses to attract greater levels of Foreign Direct Investments (FDIs) into the country. A number of tax incentives are granted to both local and foreign investors and governed by the Tanzania Investment Act 1997

Tax incentives are now granted in the form of enhanced capital deductions and allowance structured according to lead and priority sectors which include agriculture, agro based industries, mining, tourism, petroleum, gas and economic infrastructures

Tax Incentive package

  • Provision of strategic investor’s status with incentives beyond those provided to normal investors.
  • Royalty 3% except for diamonds, which is 5% and 12.5% for petroleum and gas
  • No tax, duty, fee or other fiscal impost on dividends
  • No capital gain tax
  • Losses carried forward for unrestricted period
  • Duty rate of 5% and VAT will be charged after the first five years of commercial production.
  • Yearly appreciation of unrecovered capital in investment
  • Importation by or supply to a registered licensed exploration, prospecting, mineral assaying, drilling or mining company of goods which if imported will be eligible from duty under customs law, and service for exclusive use in exploration, prospecting, drilling or mining activities

Economic infrastructures

Road, railways, air and sea transport, port facilities, telecommunication, banking & insurance

Effectiveness of Tax Incentives

  • Various methodologies have been to employ to study the effectiveness of tax incentive: Research on cost benefits analysis, sector specific approaches, Investor Motivation surveys
  • Tax Expenditures
  • In LDCs experience with tax incentives has produced mixed results
  • Most countries however have had little to show in exchange for the incentives they have offered
  • Econometric studies on investment incentives in developing countries are scanty, mainly due lack of good firm level data on investment in these countries.
  • Investors have confirmed that while incentives were not an important factor in their decisions to invest, they would ask for them anyway because incentives improved their bottom lines

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Tax Incentives

The tax law nº16/2005 of 18/08/2005 on direct taxes on income provides the following   tax incentives to investors in Rwanda:

Investment allowance

An investment allowance of forty percent (40% in Kigali and 50% outside Kigali) of the invested amount in new or used assets may be depreciated excluding motor vehicles that carry less than eight (8) persons, except those exclusively used in a tourist business is deductible for a registered investor in the first tax period of purchase and/or of use of such an assets  provided the amount of business assets invested is equal to thirty million (30,000,000) Rwandan francs; and, the business assets are held at the establishment for at least three (3) tax periods after the tax period in which the investment allowance was taken into consideration.

Training and research expenses

All Training and Research expenses incurred and declared as agreed by a taxpayer and declared and earlier agreed and which promote activities during a tax period are considered as deductible from taxable profits in accordance with provisions of Article 21 of this law provided they do not relate to capital expenditure.

Loss carried forward

If the determination of business profit results in a loss in a tax period, the loss may be deducted from the business profit in the next five (5) tax periods, earlier losses being deducted before later losses. Foreign losses do not come into play. No carry back of losses is available.

Tax discount and exemption

A registered investment entity that operates in a Free Trade Zone and foreign companies that have theirs headquarters in Rwanda that fulfils the requirements stipulated in the Rwandan law on Investment Promotion is entitled to pay corporate income tax at the rate of zero per cent (0%) and is exempted  from 15% withholding tax mentioned in Article 51 of the law nº 16/2005 of 18/08/2005 on direct income. It is also entitled to tax free repatriation of profits.

Profit Tax Discount

A registered investor shall be entitled to a profit tax discount ranging from 2% to 7% depending on the number of Rwandans employed and the value of exports made during the tax period..

Micro finance activities

Companies that carry out micro finance activities approved by competent authorities pay corporate income tax at the rate of zero percent (0%) for a period of five (5) years from the time of the approval of the activity. However, this period may be renewed by the order of the Minister

 

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