Rwanda, Mauritius Sign New Tax Deals

The agreement, tabled before parliament for ratification last week, will see a 10 per cent withholding tax on dividends, royalty and interest and 12 per cent for management fees introduced for investors between the two countries.

This follows suspension of the previous agreement signed in 2001, after Rwanda expressed concern that Mauritius was benefiting disproportionately from it. Specifically, in the previous agreement, all the taxation rights belonged to Mauritius.

Analysts point to the tax regime in Mauritius, which is considered too generous. As a result, most investors would opt to register their companies in Mauritius while doing business in Rwanda and repatriating all their profits without paying taxes.

“It is meant to discourage treaty shopping; with an agreement like the one we had before, where Mauritius had all the rights of taxation, people would go and register there because it is a low tax economy — sometimes businesses pay no taxes at all. Then they would invest here, and repatriate all their income and profits without paying taxes here,” said Ben Kagarama, Commissioner General of the Rwanda Revenue Authority (RRA).

Mr Kagarama said the new agreement would minimise revenue leakage and allow fair taxation between the two countries. “We want fair taxes,” he said, pointing out, that introducing withholding taxes on dividends and interest with a capital gains tax in particular for big companies boosts revenue collections. Meanwhile, Rwanda’s Finance Minister Claver Gatete said the new agreement would also promote Mauritian investment in Rwanda.

“We found that in terms of taxation, it was benefiting Mauritius more than ourselves. Now that business is developing more in Rwanda, with information technology infrastructure services picking up, we are going to go in for offshore services, business outsourcing processing… Mauritius has the capacity to do that from here, but we are saying they should play by our rules. So this will encourage them to come and work in Rwanda, but at the same time our taxation policy will take advantage of that,” Rwanda’s Finance Minister Claver Gatete told The EastAfrican.

Though currently Mauritian investment in Rwanda is minimal, the country has expressed interest in agro-business, chemical and energy industries. It already has investments in energy and sugar production. Specifically, Stramon Ltd, a subsidiary of Groupe Stramon, is expected to build a peat power generation station worth $25 million in western Rwanda in Rusizi district.

The agreement will also allow exchange of information that will enable governments to track investors trying to evade tax.

Rwanda also plans to sign a similar tax agreement with Singapore. It has stepped up its quest for private investment in recent months to boost domestic resources as it seeks to wean itself off aid.