Fixed Asset Tax
Tax on fixed assets is governed by:
- The law No 59/2011 of 31/12/2011 establishing the source of revenue and property decentralised entities and governing their management; in its articles from 6 to 38.
Who has to pay
The following persons have to pay fixed asset tax if they have the land title deed:
- the owner of fixed asset;
- the holder of the fixed asset whose the legal owner is unknown for a period of at least 2 years;
- the holder of fixed asset if the freehold land title is not yet registered in the name of the owner;
- the proxy who represents the owner who lives abroad;
- a usufructuary.
Fixed asset tax base
The tax is to be paid on the market value of the fixed asset. The fixed asset includes land, buildings and improvements made on the fixed asset.
Tariff or tax rate
The tax rate is fixed at 1/1000 of the taxable value per year.
The following fixed assets are exempted from the fixed asset tax if they are not used for profit - making activities:
- fixed assets used for medical purposes, vulnerable groups, educational and sporting activities;
- fixed assets intended for research activities;
- fixed assets belonging to the Government, Provinces, decentralized entities;
- fixed assets used for religious activities;
- fixed assets used for charitable activities;
- fixed assets belonging to foreign diplomatic missions in Rwanda if their respective countries do the same for Rwanda;
- land in use for agriculture, livestock or forestry if is not more than 2 hectares. If this land is more than 2 hectares, the tax is imposed only on the excess land;
- fixed assets used for residential purposes, if the assessed value does not exceed 3,000,000Rwf. If the assessed value exceeds such amount, only the excess value is taxed.
Points to note:
- When a fixed asset is owned by more than one (1) co-owner, the co-owners must appoint and authorize one of them to fulfill all the obligations regarding the fixed asset tax.
- The market value of the fixed asset either based on self assessment or official re-assessment by the decentralized entity is valid for four (4) years of the assessment cycle if no major changes leading to an increase or decrease by more than 20% have been occurred. The valuation of fixed asset is made on January 1st of the first year in 4 yearly assessment cycle.
- Fixed assets which are leased under the land lease regime shall be considered as state owned land and excluded from the fixed asset tax base.
- If during the assessment cycle of 4 years, the value of the fixed asset increases or decreases by more than 20%, a new tax declaration is submitted within one (1) month with all details on changes to a fixed asset.
- The methodologies to determine the value of the fixed asset are the followings:
- If the fixed asset was valued by a certified real fixed asset valuer within the previous four (4) years and no major changes in the buildings and structures, leading to an increase or decrease of the fixed asset value by more than 20%, have occurred, this value shall be regarded as the market value. In this case, the taxpayer shall provide the certificate of valuation for verification purposes to the decentralized entity.
- If the fixed asset was bought within the previous four (4) years in the free market and no major changes have occurred to it, the purchase price shall be regarded as the market value. In this case, the taxpayer shall provide the sale contract for verification purposes to the decentralized entity.
- If the fixed asset was constructed within the previous four years, the construction costs plus the value of the land shall be regarded as the market value. In this case, the taxpayer has to provide documents certifying the construction costs for verification purposes to the decentralized entity.
- In all other cases, the taxpayer shall make his/her own estimation based on his/her best judgment. He/she shall indicate the value for which he/she would be willing to sell the fixed asset to a third party. In this case, the taxpayer shall provide a photo of all buildings and improvements on the plot for verification purposes to the decentralized entity.
- If the fixed asset is a vacant land as explained by the Ministerial order No 005/12/10/TC, article 3, its market value is the per square meter value times the size of that land.
Mr Bob is living in Nyarugenge district and he owns the following fixed asset for which he obtained the freehold land title in 2010:
- A parcel of land in Gasabo district of 1 hectare on which he plans to build his hotel. The square meter is valuated at 5,000 Rwf at 1st January 2011;
- Commercial house in Nyarugenge district valuated at 200,000,000 Rwf at 1st January 2011;
- Residential house in Nyarugenge district purchased in 12/ 2010 at 100,000,000 Rwf.
- Calculate the total fixed asset tax to be paid by Mr Bob for 2011;
- Indicate the deadline of tax declaration and payment;
- Determine the fixed asset tax belongs to each decentralised entity.
Calculation of total fixed asset tax for Mr Bob, 2011
Fixed asset tax base
Fixed asset tax
Parcel of land
1 hectare = 10,000 square meter 10,000 * 5,000 Rwf = 50,000,000 Rwf
50,000,000*1/1000 = 50,000 Rwf
200,000,000*1/1000 = 200,000 Rwf
100,000,000Rwf - 3,000,000Rwf = 97,000,000 Rwf
97,000,000*1/1000 = 97,000 Rwf
Deadline of tax declaration and payment : 31/03/2011.
Fixed asset tax for Gasabo district : 50,000 Rwf.
Fixed asset tax for Nyarugenge district : 200,000 Rwf + 97,000 Rwf = 297,000 Rwf.
The procedures applicable to fixed asset 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 Nº005/12/10/TC of 22/06/2012 determining the modalities for the implementation of law Nº 59/2011 of 31/12/2011.
A fixed asset tax declaration is done through the self-assessment scheme whereby it has to be filled and signed personally by the taxpayer, his or her proxy or the usufructuary and submits it to the concerned decentralised entity not later 31 March of the tax year.
The tax payment is made at the bank and then the bank slip is taken to the sector office for getting a receipt of tax payment. The followings scenarios should be happened:
In case of the self - assessed tax:
The tax must be paid not later than March 31st of the tax year.
In case of re-assessment done by the decentralized entity:
The additional fixed asset tax, if any, has to be 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 by the taxpayer or his proxy and can be granted for up to six (6) months without any fine, but the interest must be paid. It must be requested in writing at least one (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 are the prior condition for the taxpayer who requests the tax payment in instalments.
Interest and fines
The interests, fines and penalties have to be applied for the following cases:
- In case of absence, late submission, or incomplete or misleading tax declaration:
- 10 % of the tax due, if the delay is less than one month;
- 20 % of the tax due, when the delay is not more than two months;
- 30% of the tax due, in case the delay is not more than three months;
- 40 % of the tax due, if the delay is more than three 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 for one year when it is the first time and 40% of tax due for one 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
The followings audit procedures are provided by the regulation:
- For the 4 years of the assessment cycle, the tax declaration can be reviewed by the decentralized entity within a period of 6 months after the date of filing the tax declaration. If additional tax is assessed the decentralised entity issue the tax assessment notice and send it to the taxpayer.
- The followings persons or entities have obligations to provide information within 15 business days to the decentralized entities: Taxpayer; Third parties; Persons bound to professional secrecy.
- The decentralized entity may any time correct the tax declaration submitted by the taxpayer. It has the right to officially review all data and prepare adjustments if the taxpayer has not done properly his tax declaration.
- After audit and investigation, the tax assessment is done and sent to the taxpayer within 6 months after the date of tax declaration was submitted.
Tax recovery procedures
When the taxpayer has not declared and paid the tax due or has declared and not paid the tax, the concerned decentralized entity have the 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 and action planned to enforce the law. If the tax is not paid within one (1) month, the concerned decentralized entity shall pass to other steps.
- Access to money owed to or held by third parties on behalf of the taxpayer :
If a tax is not paid within thirty (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 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.
- The taxpayer who is not satisfied with the re-assessed market value can submit a written and signed objection, within thirty (30) days, to the decentralized entity in which the taxable fixed asset is located.
- 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 one (1) month after that the decision has been taken.
Note: The appeal shall not suspend the obligation to pay tax, interest and penalties.
Fixed asset tax forms
See in attachment the fixed asset tax declaration forms from the brochure developed by MINECOFIN.
Roles and responsibilities
The decentralized entities are entrusted with implementation of the new legislation regulating local revenues administration. Specially, concerning the fixed asset tax, the decentralized entities must assume the following responsibilities:
- To avail tax declaration forms no later than January 31st of every year.
- To review the tax declaration within a period of six months stating from April 1st of the year the tax declaration was filed.
- In case of co-ownership, when the co-owners have not appointed a proxy, the decentralized entity has the right to select any of them as a proxy for all the co-owners as a group.
- To respond to the appeal of taxpayer within two (2) months after receiving the letter of objection.
- To reply within fifteen (15) days when the taxpayer requests 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).