You’ve registered your business in record time at the Rwanda Development Board (RDB) and now you’re ready to start selling/consulting/whatevering. But don’t forget about paying your national taxes.
Ideally, RDB would give all newly-registered businesses a welcome packet with FAQs about processes like this. When and exactly how to pay your taxes is not clear on RDB’s website or the English website of the Rwanda Revenue Authority (Rwanda’s IRS). Some Rwandan business owners told me the information isn’t clear on RRA’s Kinyarwanda website, either.
What’s a person to do?
Well, you can learn from my mistakes.
I first registered my business in February 2013. My Kigali-based accountant advised me that I needed to pay my national taxes for 2013 at the beginning of 2014. I keep close track of all my income and expenses via a great website called Freshbooks, so when taxpaying time came around, I knew exactly how much I owed. I went to RRA, where a helpful woman asked me how much I earned in 2013 (she didn’t ask for any documentation of this amount, by the way), typed the number into a computer and printed my tax payment form for me. Then I had to run downstairs and get the form stamped and signed by another woman. The second woman almost didn’t sign my form because I didn’t have a business stamp. I kinda laughed and said, “I want to give the government money. Are you not going to let me give the government money because of a stamp?” She smiled and signed off. In all this took me about one hour.
Back in early 2014, the Rwandan government was touting online tax payments. Unfortunately, the system didn’t work for me, so I ended up pulling a bunch of cash and paying my taxes in person at the Bank of Kigali headquarters in town. It was about two weeks before the March 31 deadline and I waited for two hours along with about 20 other people. It was not fun. This was the only time I’ve seen Rwandans get in a tizzy about people cutting in line. I can only imagine the scene if you procrastinate paying your taxes.
As 2014 progressed, I met with my Kigali-based accountant again to make sure I was doing things right. We likely talked about something related to quarterly tax payments, but I didn’t pay close enough attention. My accountant in Rwanda doesn’t actually do my taxes for me – just advise me – so there’s no blame on her, just me for not listening enough. I assumed that paying taxes every quarter was optional, like it is in the United States (where I’m from) – a suggestion to keep you organized throughout the year, not a regulation with consequences.
Oh, the consequences!
More about those in a minute, but first a word about the regulations as I recently experienced them.
During your first tax year in business you pay national taxes only after the end of that calendar year. So if you register your business in August, you don’t pay any taxes until after Dec. 31 of that year. Then you have until March 15 of the next year to pay your taxes for the previous year (or portion of the previous year). In your second and subsequent years in business, you must pay taxes every quarter based on the total amount you paid the previous year. So, if last year you paid a total of 200,000 RWF in national taxes, this year you will pay 200,000 RWF / 4 = 50,000 RWF each quarter.
And now about those consequences.
Each quarter you don’t pay your national taxes you must pay a flat fine of 100,000 RWF plus an additional fine of 60% of the taxes you should have paid that quarter. Plus, you still owe the actual taxes for that quarter.
As an example, let’s say you should have paid 50,000 RWF in taxes in a quarter but you pay late. Your fine amounts to 100,000 RWF + (50,000 RWF x 60%) = 130,000 RWF. That’s in addition to the 50,000 RWF in taxes you should have paid. So when you pay late, you end up shelling out a total of 180,000 RWF for a quarter where you originally owed 50,000 RWF.
In 2014, my second year in business, I didn’t pay any quarterly taxes. As a result, I recently paid almost as much in fines as I did in taxes. It was awful. I was mad at myself for not fully educating myself about the tax regulations. I had to fill out and sign tons of forms where I admitted I didn’t pay quarterly taxes and agreed to pay the penalties. I didn’t even try bothering with online tax payment. I again pulled out a bunch of cash and paid up at the bank.
Please note that I’m not giving tax advice in this blog post. I’m the daughter of an accountant but that doesn’t mean I can help you calculate your taxes owed in Rwanda or give you other tax advice. I’m just sharing my experience for peoples’ benefit.
If you need tax information or assistance you might try talking in person with the mostly friendly and helpful employees at RRA. Also, I highly recommend my Kigali-based accountant, Lindsay Hodgson. Fair warning that she’s pricey – you get what you pay for. She’s the auditor for PricewaterhouseCoopers in Rwanda and she can quote straight from Rwanda’s tax code. Just be sure you carefully listen to her. Be ye not like me.