The rental income tax is governed by:
- Law No 59/2011 of 31/12/2011 establishing the source of revenue and property of decentralised entities and governing their management especially in its articles from 48 to 56 ;
Who has to pay
The rental income tax is paid by any individual who earns income from renting out the fixed assets located in Rwanda, including land, buildings and improvements.
Rental income tax base
The rental income tax is charged on the total amount of rental income earned during the previous tax year.
Tariff or tax rate
The rental income tax is calculated progressively by revenues brackets as follows:
- 0% on the bracket lower than 180,000 Rwf ;
- 20% from 180,001 Rwf to 1,000,000 Rwf ;
- 30% above 1,000,000 Rwf.
Points to note
The taxable income is obtained in one of 2 ways:
- Deducting from the gross rental income 50% considered as the expenses incurred by the taxpayer;
- Deducting from gross rental income 30% considered as the expenses incurred plus bank interest paid if the tax payer has proof of paying bank interest on the rented fixed asset during the tax year.
- The copy of the rental contract has to be submitted to the decentralized entity where the asset is located within a period not exceeding fifteen days (15) following the date the contract was signed.
- When a rental contract is expired or is amended, the taxpayer has to notify the decentralized entity within thirty (30) after the contract is terminated or amended.
Paul owns 3 houses located at Kicukiro district. For the year 2011, he received rental income of 12,000,000 Rwf for each house.
- Calculate the tax on rent payable for the revenues received in year 2011;
- Indicate the deadline of the tax declaration and payment.
Calculation of taxable net income:
Total taxable income: (12,000,000 Rwf* 3) = 36,000,000 Rwf
Taxable net income: 36,000,000 Rwf - (36,000,000*50%) = 18,000,000 Rwf
Calculation of tax:
- 0% on the bracket lower than 180,000 Rwf = 180,000*0% = 0 Rwf
- 20% between 180,001 Rwf and 1,000,000 Rwf = 820,000*20% = 164,000 Rwf
- 30% above 1,000,000 Rwf = 17,000,000*30% = 5,100,000 Rwf
Total tax payable ………………………………… .................................5,264,000 Rwf.
This tax must be declared and paid not later than 31 March 2012.
ii. PROCEDURES APPLICABLE TO THE RENTAL INCOME TAX
The procedures applicable to the rental income tax are governed by:
- Law No 59/2011 of 31/12/2011 establishing the source of revenue and property of decentralised entities and governing their management;
- Ministerial order Nº 005/12/10/TC of 22/06/2012 determining the modalities for the implementation of law Nº 59/2011 of 31/12/2011.
Any person who receives rental income has to file official tax declaration form and submit it to the decentralized entity where the fixed asset is located before or on 31st March of the year following the tax year from which the rental income was received. The tax declaration form has to be accompanied by a copy of the rental contract.
The tax declaration form must be signed by the taxpayer or a designated representative who should therefore present the official designation letter.
The tax payment is made at the bank and then the bank slip is taken to the sector for getting a receipt of tax payment. The followings cases should be considered:
In case of the self - assessed tax:
The tax must be paid not later 31 March of the following tax year.
In case of re-assessment done by the decentralized entity:
The additional tax is paid within one (1) month from the day the tax assessment notice is received by the taxpayer.
In case of deferral of tax payment:
A deferral of tax payment can be requested in writing for 6 months without any fine, but the interest must be paid. It must be requested 1 month before the due date to the Council of the concerned decentralized entity.
In case of tax payment in instalments:
The taxpayer can request for paying tax in instalments. The payment in instalments can't exceed a period of 12 months. The decentralized entity must reply to the applicant within fifteen (15) days from the date of request. The submission of the tax payment instalment plan and payment of at least 25% of the amount due is a prior condition for the taxpayer who requests the tax payment.
Interest and fines
The interests, fines and penalties have to be applied for the following cases:
- In case of absence or late submission
- 10 % of the tax due, if the delay is less than one (1) month,
- 20 % of the tax due, if the delay is not more than two (2) months,
- 30 % of the tax due, if the delay is not more than three (3) months,
- 40% of the tax duel, if the delay is more than three (3) months.
In case of incomplete, incorrect or fraudulent information with an intention of evading tax, the offender is subject to a fine of 20% of tax due of one (1) year when it is the first time and 40% of tax due of one (1) year if the offence is repeated.
- In case of late tax payments (law no 59/2011, article 25),
- Interest of 1.5% per month calculated from the date the taxes are due up to the date they are paid.
- Surcharge of 10% of the tax due. However, such a surcharge must not exceed an amount of 100,000 Rwf.
Audit and investigations procedures
- An authorised decentralized entity officer can conduct investigations in order to verify if the self assessed tax declared is actual tax to be paid.
Tax recovery procedures
If by the due date, the tax is not declared and paid, or the taxpayer has not applied for tax deferral, the concerned decentralized entity has right to start the tax recovery procedures through the following steps:
- Warning letter:
The warning letter is sent to the taxpayer with all the details of the unpaid taxes. If the tax is not paid within 1 month, the concerned decentralized entity shall continue the tax recovery procedures.
- Access to money owed to or held by third parties on behalf of the taxpayer :
If a tax is not paid within 30 days after having received a warning letter, the concerned decentralized entity request officially to any debtors, bankers or other persons who hold money on behalf of the taxpayer or to whom the taxpayer has the legal claim, to pay to pay to the decentralized entity the amount due to the taxpayer against the taxpayer’s tax liability. Those third parties have to react within fifteen (15) business days from the date of receipt of the request.
- Seizure and sale of movable and fixed assets :
If the fixed asset tax remains unpaid, and after having finished other enforcement mechanisms, the decentralised entity has the right to seize and sell the movable and taxable fixed assets of taxpayer in order to recover the tax unpaid. This right can't be exercised before a period of 3 years from the date of tax payment. The seized assets must only be sold by public auction.
- Write off of the due tax :
The Council of the concerned decentralized entity can write off the due tax after getting a proof shows that the taxpayer is totally indebted and that a public auction of his remaining assets will give up no result.
Appeal procedures are the followings:
- The taxpayer who is not satisfied with the calculated rental income tax, as it is indicated in the assessment notice, can submit a written and signed objection, within thirty (30) days, to the concerned decentralized entity.
- The decentralized entity must communicate its decision in writing within sixty (60) days. If not, the objection of the taxpayer is deemed to be valid.
- If the taxpayer is not satisfied with the decision of the decentralised entity, he can send a written and signed appeal to the competent court within thirty (30) days following the receipt of the decision.
- If the taxpayer wins the case, the concerned decentralized entity must pay back the overpaid tax within 1 month after that the decision has been taken.
- The appeal shall not suspend the obligation to pay tax, interest and penalties;
- When the rental contract is expired or amended, the taxpayer must notify the decentralized entity within thirty (30) days.
(See in attachment the rental income tax declaration forms from the brochure developed by MINECOFIN).
i) Roles and responsibilities
The decentralized entities are entrusted with implementation of the new legislation regulating local revenues administration. Concerning the rental income tax, the decentralized entities must assume the following responsibilities:
- To avail tax declaration forms no later than January 31st of every year.
- To respond to the appeal of taxpayer within sixty (60) days after receiving the letter of objection.
- To reply within fifteen (15) days when the taxpayer requests for tax deferral or to pay in instalment.
- To follow all recovery procedures ( address a warning letter to taxpayer, Access to money held by third parties on behalf of the taxpayer, Seizure and sale of movable and fixed assets) for unpaid taxes.