Effective from 8 February 2021, Rwanda has a new law n° 006/2021 of 05/02/2021 on investment promotion and facilitation (“New Investment Code”) repealing law n° 06/2015 of 28/03/2015 that was in force since 2015. The new law brings about a set of new investment incentives mainly geared at enhancing Rwanda’s competitiveness, attract cross-border investments, new businesses and financial institutions to operate across the African continent and beyond through the newly set up Kigali International Financial Centre.

The first striking change under the New Investment Code relates to the new priority economic sectors such as:

  • mining activities relating to mineral exploration;
  • construction or operation of specialised innovation parks or specialised industrial parks;
  • transport, logistics and electric mobility;
  • horticulture and cultivation of other high-value plants included on the list approved by the Rwanda Development Board;
  • creative arts in the subsector of the film industry; and
  • skills development in areas where the country has limited skills and capacity as determined by the Rwanda Development Board.

Another important change under the New Investment Code relates to varied tax incentives that have been introduced. These include:

  • A preferential corporate income tax rate of 3% applicable to pure holding companies, investment SPVs, collective investment schemes, on foreign sourced income of an investor operating as a global trading or paper trading, and on foreign sourced royalties of intellectual property companies meeting the conditions set out under the New Investment Code.
  • Tax incentives for entities established by philanthropic investors which include non-recognition as revenue of grants and funds transferred to the philanthropic entity for the purposes of financing its social impact activities; 0% VAT rate on the goods and services procured locally by the entity and exemption from employment income tax of the expatriates employed by the entity provided they do not exceed 30% of the employees of the entity as well as refund of social security contributions paid to the Rwanda Social Security Board upon permanent departure of the expatriates from Rwanda.
  • A preferential withholding tax rate of 5% on dividends and interest paid on securities listed on the Rwanda Stock Exchange. A similar incentive already exists under the Income Tax Law, but it is only limited to dividends and interest whose beneficiaries are Rwandan and/or East African Community residents.
  • A preferential withholding tax rate of 10% on interest paid on foreign loans, dividends, royalties, and service fees, including management and technical service fees by specialised innovation park developers or specialised industrial park developers.
  • Exemption for angel investors investing a maximum USD500 000 in a start-up from capital gains tax upon the sale of shares, provided the shares were initially purchased as a primary equity issuance by the start-up, and from withholding tax applicable to dividends up to five distributions by the start-up.
  • Tax incentives to investors in film industry meeting the requirements under the New Investment Code. Those incentives include a 0% VAT rate on the goods and services procured locally and a preferential withholding tax rate of 0% on payments made for specialised services procured by the investor. A list of the qualifying foreign specialised services is jointly approved by the Rwanda Film Office and the Rwanda Revenue Authority (“RRA”).

Another interesting feature of the New Investment Code (which was provided for under the 2005 investment code) is that in addition to the incentives set out in the law, special incentives can be provided to strategic investment projects (ie, investment projects of national importance, which have a strategic impact on the development of the country and meet other requirements set out under the code). Strategic investment projects that meet qualifying criteria and corresponding additional investment incentives are approved by the cabinet upon proposal by the Private Investment Committee (a committee established by the New Investment Code) whereafter an agreement to that effect is negotiated and entered into between the registered investor and the government.

The change revived by the new law allowing the cabinet to grant additional incentives is quite timely given that ad hoc incentives previously granted by the government in absence of a specific legal statute have sparked contentions with the RRA refusing to recognise such incentives on the ground that they are not provided for by the law as required by the constitution.

The New Investment Code provides for several tax and non-tax incentives, and one would have no trouble concluding that it contains what it takes to attract the location of internationally mobile production factors in Rwanda, and one would expect to see a number of multinationals choosing Rwanda as their holding jurisdiction for expansion in other African countries. However, the country equally also needs to keep its focus on other investment location determinants such as infrastructure, macroeconomic environment, predictable tax system, goods market efficiency, labour market efficiency, technological readiness, and innovation. And that way, the country of thousand hills could expect to see deployed investments and sacrifices made in terms revenues collection generate commensurate development benefits.