Value Added Tax


The Concept of VAT and its History in Rwanda

In contrast to income tax, value-added tax (VAT) is a tax on consumption. This means that the taxpayer is not taxed on the moment when their wealth increases but at the time when wealth decreases. The tax due is not dependent on the size or nature of the incomes of the taxpayer but instead on their expenditure.

The nature of VAT therefore has two distinguishing characteristics in contrast to many other kinds of taxation:

o It is a tax which affects consumption It is a tax that is imposed at the same rate and has the same absolute impact on all taxpayers without taking into consideration their respective incomes.

However VAT is the tax which generates the most revenues from taxes as far as the Rwandan state budget is concerned, and indeed is very important in the tax landscape of many countries.

VAT was introduced in Rwanda in 2001. It has replaced another tax on consumption which existed before this date, which was called “Tax on turnover” (ICHA). This last tax had been introduced into the Rwandan tax system by Law nº 29/91 of June 28, 1991 which levied tax on turnover. This tax on turnover was drawn up as a single tax on production and was calculated on the selling price of products imported or manufactured locally as well as the provision of services and the production of spectacles, plays, entertainment and attractions. The rate of the tax rose to ten percent (10%) except for goods that meet basic needs (” staples”) which were taxed at five percent (5%). The taxpayer had the right to include this tax in their selling price, but the tax was due even if the taxpayer had not done so.

Characteristics of VAT

The characteristics of VAT are as follows:

  • VAT is a tax on turnover which constitutes a tax on the expenditure paid by the ultimate consumer since it concerns a general tax on products and services. In spite of its name, VAT is not calculated based on added value but on the price or the total value of the goods or services in question;
  • VAT is a tax collected by split payments which is received each time a chargeable commercial transaction is made. It is not a tax on production which would be due from just one intermediary in the chain;
  • VAT is a neutral tax. Except in some rare cases, a person who is not the ultimate consumer recovers the whole of the VAT which has been invoiced to him by suppliers. The tax is consequently not an element of the cost price and the length of the chain of production does not impact on the amount of the tax due. This tax is supported entirely by the ultimate consumer;
  • VAT is a transparent tax. It is possible, at each stage of the marketing of a product, to determine the amount excluding VAT and the amount of the VAT included. Indeed, if one knows the price excluding VAT of a good or of a service (PEVAT) one can calculate the amount of the VAT included as well as the VAT inclusive price (PVATI) by the following formula: PVATI = PEVAT + (PEVAT x VAT rate).

Mechanisms of VAT

The taxable person, unless exempted (for this concept, see above), effectively plays the role of tax collector, i.e. they invoice the tax to their customer and they pay it to the tax administration after deduction of the VAT which is paid by them to their own suppliers.



Art 12. 1 of Law Number 06/2001 (dated 20th January 2001) relating to the introduction of VAT  states that  supplies of goods and provisions of services carried out subject to payment by a taxable person acting in that capacity are regarded as being chargeable.

This article was supplemented by the provisions of article 10 of the Ministerial Order Number 001  (dated 13th January 2003),  relating to procedures concerning the imposition of VAT. These  specify that a taxable person is: “anybody who carries on a chargeable activity in Rwanda  (…)”.

However, it is necessary to distinguish two (2) categories of taxable people (art.10 of Law Number 25/2005 (dated 4th December 2005) which deals with the creation of tax procedures, namely;  o Any person who undertook a chargeable activity in the preceding fiscal year exceeding twenty Rwandan franc million (20.000.000 RwF) or  five million  Rwandan francs (5.000.000 RwF) in the previous quarter is required to register and submit a VAT return to the Tax authorities within seven (7) days of the end of the period;

Any person who is not mandatorily required to register for VAT can do so voluntarily.  The law here aims at any supplier who does not meet any of the two conditions mentioned above. §2. Consequences of the constraint

Any taxable person who carries out deliveries of goods or provisions of services that are covered by the VAT Law must invoice the price with the VAT added. And insofar as its operations are subjected to VAT, the taxable person can deduct from the payment to the RRA the VAT for which they have been invoiced. Moreover, it is required to pay the tax charged to the public treasury.

In addition the taxable person also has a series of obligations concerning accounting for VAT: these include rules on bookkeeping, retention of invoices etc. (Article 65 LVAT and art. 14 LTP).

LVAT refers to Law 06/2001 of 20/01/2001 on the code of Value Added tax  And LTP is Law 25/2005 of 4/12/2005 on Tax Procedures

Taxable operations

A number of operations are subject to Rwandan VAT when the taxable event takes place in Rwanda (Article 2 LVAT). These include supplies of goods, provisions of services, and imports.

  Supply of goods

“Consideration” in relation to a supply or import, means the total amount in money or its equivalent paid or payable for the supply or import by any person, directly or indirectly. It includes any duties, levies, fees, or charges paid or payable on, or by reason of, the supply or import, other than value added tax, reduced by any price discounts or rebates for prompt payment, allowed and accounted for at the time of supply or import (Article 85.6 LVAT).

The supply of goods is therefore a transfer of property (usus, fructus, abusus- these concepts date back to Roman Law: usus is the right to enjoy the fruits of something, abusus is the ability to destroy something and fructus is the ability to harvest those fruits) even if the effective delivery of the goods involved may only come into effect only at a later stage (for example, a contract of  lease back  by which an owner sells a good and then hires it back) or although the payment to the counterpart is not carried out at once (for example a hirepurchase transaction).

“Goods” means tangible movable property, buildings and other real property developments, and items treated as goods under this Law, but does not include money; (art 85.8 LVAT).  For purposes of the application of the VAT, intangible goods such as a service, gas or electricity are treated in the same way as tangible or movable property.

  Provision of services

Provisions of services may be defined as all the operations which do not require a transfer of property but which are made with a counterpart including leases, hire or the transfer of a right or interest. It should nevertheless be specified that the provisions of services made by an employed person or a government official are not taxable operations as far as VAT is concerned.


Imports can be either a supply of goods or a provision of services. The import of goods refers to goods coming into Rwanda from a foreign country. It relates to a provision of services if it is carried out under one of the following two (2) conditions (Article 85.10 of the LVAT):

  • The service provider is a non-resident;
  • The person receiving benefits of the services is a resident in the ordinary sense of a business carried on outside Rwanda but the services are supplied for use or consumption in Rwanda.

Exemption and operations imposed on a zero rate basis  VAT Exemption

Art. 86 of the LVAT describes a series of operations which are exempted from VAT. These operations give place neither to VAT invoicing, nor VAT declaration or recording for the taxable people who carry them out. However, by the same token they do not have the right to deduct any VAT that they pay on the goods and services that they purchase.

As modified and completed by article one of Law Number 29/2010 (dated 30th June 2010), “Notwithstanding the powers vested in the Minister by the provisions of Article 15 of this  Law, the following goods and services are exempted from Value Added Tax”:

  • Water supply services:
    • the main supply of clean water;
    • sewerage treatment services to protect the environment for non-profit motives.
  • Goods and services for health purposes:
    • the supply of health and medical services;
    • articles designed for persons with disabilities;
    • the supply of equipment and drugs to hospitals and health centres;
    • the supply or importation of drugs and medical equipment made by authorized persons for medical use, to patients and persons with disabilities

Bodies eligible for exemption under point 2 (b) shall be those recognised by the laws of Rwanda as public institutions, social organisations and any other form of voluntary or charitable institution.

  • Educational materials and services:
    • educational services provided to pre-primary, primary and secondary students;
    • educational services provided by social organizations to students and other youths, with the aim of promoting the social, intellectual and spiritual development of the members for non-profit purposes;
    • educational services provided to vocational and other higher learning institutions;
    • educational materials supplied directly to learning institutions.

Eligible bodies for the purposes of this exemption shall be those recognised by the laws as public institutions, not for profit social organisations and any other form of voluntary or charitable institutions.

  • Books, newspapers, journals and other electronic equipment used as educational
  • Transport services:
    • transportation of persons by road in busses and coaches licensed under the law governing the transport vehicles with a seating capacity for fourteen (14) persons or more;
    • transportation of persons by air;
    • transportation of persons by railway;
    • transportation of persons or goods by boat;
    • transport of goods by road.
  • Lending, lease and sale :
    • the sale or lease of an interest in land;
    • the sale of a building or part of a building, flat or tenement meant for residential purposes;
    • the renting of, or other grant of the right to use, accommodation in a building used- predominantly as a place of residence of any person and his family, if the period of accommodation for a continuous term exceeds 90 days, unless the building is meant for accommodation.
  • Financial and Insurance Services:
    • the premiums charged on the provision of life and medical insurance services;
    • fees charged on the operation of current accounts;
    • transfer of shares;
    • capital market transactions for listed securities.
  • Precious metalshe supply of gold to a Bank in bullion form.
  • Funeral services:

The supply of any goods or services in the course of a person’s burial or cremation, including the provision of any connected licence or certificate.

  • Energy supplies:
    • energy saving lamps;
    • solar water-heaters;
    • wind energy systems;
    • liquefied petroleum gas, cylinders and invertors;
    • equipment used in the supply of biogas energy;
    • kerosene intended for domestic use, premium and gasoil.


  • Trade Union subscriptions.
  • Leasing of exempted goods.
  • All Agricultural and Livestock products, except for those which are subsequently processed, are exempted from VAT. However, milk which is processed by local industries is exempted from this tax.
  • Agricultural inputs and equipment.
  • The following goods and services imported by persons with the appropriate investment certificates are exempted from Value Added Tax:


  • machinery for industries;
  • raw materials for industries;
  • building and finishing materials imported by an investor fulfilling the requirements determined by an order of the Minister in charge of finance;
  • refrigerating vehicles, tourist vehicles, ambulances, fire-extinguishing

vehicles, hearses;

  • vehicles and movable property and equipment for foreign and Rwandan diaspora investors and their expatriate staff;
  • equipment for tourism and the hotel industry and relaxation sites defined on the list determined by the Minister in charge of finance;
  • goods and services meant for free economic zones;
  • medical equipment, medicinal products, agricultural, livestock, fishing equipment and agricultural inputs;
  • equipment in education field;
  • tourist chartered aeroplanes.

The exemptions referred to under points a), h) and i) concern all investors, even those not possessing the investment certificate.

  • Equipment for information, communication and technology as they appear on the annex to this law are exempted from the value added tax.
  • Mobile handsets and the subscriber identification module (SIM card) connected to

The Minister of Finance has prepared a list of the exempted products which was annexed to the LVAT.

Operations imposed at a zero rate

In contrast to VAT-exempt transactions, those which are imposed at a zero rate maintain the right for deduction of associated expenditure for the taxable people who carry out them. Therefore, the taxable person must be record, invoice and declare VAT. The chargeable operations which are treated as zero rate are exports and certain operations undertaken by various categories of people (Article 87 of the LVAT). They include in particular the following situations:

  • Goods imported by a diplomatic mission accredited in Rwanda for uses inherent to the mission but subject to reciprocity in the country concerned in the country concerned;
  • Goods or services provided under a convention between the Rwandan

Government and of financial backers within the framework of finances projects.

A Ministerial order determines the conditions and the procedures concerning taxation at zero rate for these categories.

Deductions and restitutions

 Notions of the deduction

The mechanism of deductions plays an essential role in the adoption of VAT, because it is this that allows the system to be “neutral and transparent”.

In VAT, the deduction is made “tax from tax”: the taxable person deducts the tax it can deduct from expenditure that it has made from the tax that it owes to the Treasury. The mechanism is significantly different from direct taxation where the deduction is made “base to base”; i.e. where deductible expenditure is offset against the taxable amount.  

 Characteristics of the deduction

As regards VAT, the deduction has the following characteristics:

  • The deduction is immediate  in the sense that the taxable person is not required to immediately make payments of  the price of his supplies to his supplier or sell or use all the stock;
  • The deduction is total, i.e. the tax paid to a supplier is deductible for the taxpayer’s total amount due and also the fact that the tax on a supply is deducted at once, whatever its value or its lifespan;
  • The deduction is inclusive, in the sense that all the deductions relating to one declaration period (usually annual) is added together in the declaration.Conditions of deduction

Basic conditions

The principles of deduction are defined in art. 41 of the LVAT.

Three (3) conditions must be necessarily met in order to be able to profit from the right of deduction:

  • It is necessary to be a registered taxable person. The right of deduction is not available either to consumers nor to taxpayers carrying out exempted operations;
  • The operations must be chargeable, whether it is at the normal rate of the VAT or the zero rate;
  • The tax must be due. VAT is due at the moment that the goods are delivered or at the moment when the supply of the services is made (Article 20 of the LVAT). The issue of when payments are actually made to the supplier therefore does not impact on the right to deduction. The tax nevertheless must be legally due. Just because tax is mentioned on the invoice, it does not necessarily mean that this is the case. This is particularly important as far as tax evasion is concerned.

 Formal requirements

It is not enough, to meet the right to deduction, just to meet the above conditions. It is necessary in addition to meet the formal requirements whose non-observance would prevent the deduction. These conditions are on the one hand, the existence and  retention of a regular invoice and the deposit by the taxable person of regular declarations in compliance with the timetable defined by the law.

 Regular invoices 

Art. 67 of the LVAT provides that VAT is not deducted, credited or claimed if the taxable person, as recorded at the time of the declaration, is not in possession of a valid VAT invoice or any other document required as satisfactory proof for the Commissioner General of the RRA that a taxable transaction has taken place.

Art. 65 of the LVAT obliges taxable persons to deliver a valid invoice with each transaction. This invoice must carry a number of details (Article 14 LTP): these include the name of the taxpayer and the customer, the taxpayers tax identification and the identification of the purchaser if it is necessary, the number and the date of the VAT registration certificate, the description of the goods or services provided, the value of the chargeable transaction, the amount of the VAT due on the chargeable transaction, the date of raising the VAT invoice and the invoice number.

. Periodical declarations  

In order to be able to profit from the deduction, the taxable person must deposit a declaration in the office of the RRA (Article 37 LVAT). This Declaration  must be deposited within fifteen (15) days following the accounting period concerned. If the declaration is not made within this time, the taxpayer  may be required to pay interest.

According to art. 38 LVAT, the first accounting period corresponds to the month which follows that of registration. From then on, the accountable period will equate to one month except when amended by the Commissioner General of the RRA who can determine another accounting period (generally three months) in its place.


When the periodic declaration of the taxable person reveals a balance in his favour, the Commissioner General may repay to the taxpayer the amount that remains in credit due to the surplus. This should be repaid within thirty (30) day from either the end of the period relating to the declaration or from the receipt of the last declaration of tax due.

Localization of operations

It is important to locate the chargeable operations involved because, under the terms of the principle of the territoriality VAT, they are taxable in Rwanda only if they took place in Rwanda. But in theory, the place of delivery of goods is regarded as the place where the goods involved are placed at the disposal of the purchaser. If this location is in Rwanda, then the delivery of the goods is presumed to take place in Rwanda.

With regard to the character of the provision of services, the criteria used to locate them will be, by necessity, more abstract than for the deliveries of the goods. The system outlines a series of presumptions, which gives guidance as to where the service is deemed to have taken place.

According to article 9 LVAT, services shall be regarded as supplied in Rwanda if the supplier of the services:

  • has a place of business in Rwanda and no place of business elsewhere;
  • has no place of business in Rwanda or elsewhere but his usual place of residence is in


has places of business in Rwanda and elsewhere but the place of business most directly concerned with the supply of the services in question is the one in Rwanda; or d)has no place of business in Rwanda and has place of business elsewhere but the recipient of

the services uses or obtains the benefit of the services in Rwanda

Determination of VAT

 Base of the VAT

In theory, the tax due is based on payments received or those paid to obtain goods or services (Article 16 LVAT). This may be in monetary or non-monetary terms. When the payment is in a monetary form, the taxable amount is the price paid for the transaction. In this case, any discounts and the rebates are taken into account unless the payment is carried out in instalments (art.19 LVAT).

However, in cases where part of the payment is in non-monetary terms or when the price is below what would normally be expected for the goods and services concerned, the open market value is taken into account. This measure is introduced to guard against tax evasion or tax avoidance which would occur if the taxable amount below that normally obtainable on the open market, or by fixing part of the silver price and the other in delivered well or service rendered. What would be not easily appraisable for the tax department?

The open market value is defined as the price for which the goods and the services concerned could be delivered or rendered in the ordinary course of businesses to a person independent of the supplier or the person receiving the benefits (Article 17 LVAT).

Rate of VAT

The rate of the VAT is applied at a proportional rate currently fixed at eighteen percent (18%) of the taxable amount (Article 34 LVAT). Rwanda does not have reduced rates on some items as exists in some other countries. However, Rwandan legislation provides that certain supplies of goods or provisions of services either are exempt from VAT or taxed at a zero rate, as discussed above.

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