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Understanding the new tax on sale of immovable property

Since September 2023, Law No. 048/2023 dated 05/09/2023, determining the sources of revenue and property of decentralized entities, has established a tax on the sale of immovable property, levied at two different rates of 2 percent and 2.5 percent.

According to Article 17, this tax is levied on the balance of the sale value of the property after the deduction of Frw 5,000,000, which is not subject to tax.

Erneste Karasira, Assistant Commissioner in charge of Provincial & Decentralised Revenue Division, explained that the tax was introduced because many individuals were involved in buying and selling immovable properties like plots and houses, earning income but not paying taxes, in contrast to several small businesses such as small shops and motorcyclists.

“We considered it unfair to tax a few people and leave others who may be earning much income. Hence, the government came up with this tax,” he said.

When the sale value doesn’t exceed Frw 5 million, it is not subject to tax. When it is over that amount, the balance of the sale value of the property, after the deduction of Fw 5,000,000 (which is not subject to tax), is then subject to a tax rate of 2% for the sale value of an immovable property for commercial use if the seller is a taxpayer registered on  income tax. Additionally, a rate of 2.5% applies to the sale value of an immovable property sold by a person not registered on income tax.

The 2 percent is paid by income tax registered taxpayers who already had those sold immovable properties under their balance sheet.

“This 2 percent would be considered as income tax prepayment for the taxable year in which the immovable property was sold,” Karasira said.

Anyone who pays 2.5 percent is someone selling their immovable property but is not a registered taxpayer. “When they sell that property, they will pay 2.5 percent of the balance of the sale value of the property, which will be paid to the district where the property is located, unlike the 2 percent paid to the central government,” Karasira added.

He urged all notaries legalizing land ownership transfer services to verify that anyone seeking ownership transfer has paid the tax, providing proof of payment.

“This is a temporary arrangement for the initial days only. In the future, we aim to automate the service so that notaries can easily verify it online and determine whether the client has paid taxes or not,” he said.

He underscored the pivotal role of taxes in Rwanda's development and emphasized the need for prospective land buyers to ensure that all required taxes have been duly paid. Furthermore, individuals selling immovable properties should not only seek to generate income but also conscientiously fulfill their tax obligations.

In instances where tax arrears are identified, prompt follow-ups are conducted, and potential fines may be imposed for any malpractice.

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