Rwanda-Mauritius tax treaty renegotiated
With Rwanda expressing concern that Mauritius was benefiting disproportionately from the 2001 tax treaty between the two nations, taxation rights have now been allocated more fairly between them. (Image: Christophe Calais/ Corbis)
With Rwanda expressing concern that Mauritius was benefiting disproportionately from the 2001 tax treaty between the two nations, taxation rights have now been allocated more fairly between the East African economy and its more prosperous neighbor in the South.
The two countries negotiated a new agreement which was tabled before Rwanda’s parliament for ratification last week and 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. Specifically, in the previous agreement, all the taxation rights belonged to Mauritius.
The revised agreement ensures that East African companies operating in Rwanda and Mauritius will now no longer be subjected to double taxation.
Even as Mauritius is facing issues with attracting India-bound investments amid uncertainty over the India-Mauritius double tax avoidance agreement, it is also trying to keep its head above water in tax treaty negotiations with African economies.
With Africa comprising more than 50% of foreign direct investment routed through the island economy, the recent renegotiation and tightening of the tax treaty with Rwanda was a much needed measure to ensure that investments bound to the East African emerging economy continue to get routed through Mauritius.
Once again, as in case of India, the Mauritius tax regime has been identified as “too generous”. As a result, it was observed that most investors would opt to register their companies in Mauritius while doing business in Rwanda and repatriate all their profits without paying taxes.
Ben Kagarama, Commissioner General of the Rwanda Revenue Authority (RRA), emphasized that the new agreement is meant to discourage treaty shopping.
He added that with the previous agreement, where Mauritius had all the rights of taxation, people would go and register there because it is a low tax economy and sometimes, businesses would not pay any taxes at all. Then, he claimed, they would invest in Rwanda, and repatriate all their income and profits without paying taxes to the East African economy.
Kagarama underscored that the new agreement would minimise revenue leakage and allow taxation between the two countries.
Meanwhile, Rwanda’s Finance Minister Claver Gatete said the new agreement would also promote Mauritian investment in Rwanda, especially with development of its information technology and infrastructure services prompting other countries to take an interest in the East African economy’s offshore services and business outsourcing processing capabilities.
Though Mauritian investment in Rwanda is currently minimal, the island economy 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.
Besides allowing for a fairer allocation of taxation benefits, the new agreement will also allow exchange of information that will enable governments to track investors trying to evade tax.
For Rwanda, Singapore is next on its list as it plans to sign a similar tax agreement with the Asia Pacific economy. Rwanda is pulling out all stops, and plugging all tax, and other revenue, leakages, to ensure that private investment enters and benefits the domestic economy as the emerging economy seeks to wean itself off aid.
Source: The EastAfrican