Transfer Pricing in Rwanda
Rwanda has always adopted the OECD Transfer Pricing Guidelines which requires resident companies transacting with related companies operating in different countries to comply by applying the arm’s length principle in their transactions.
In December 2020, Rwanda Revenue Authority promulgated the general rules of Transfer Pricing.
Scope of Transfer Pricing
Under these rules, the scope of Transfer Pricing applies to local companies that transact with non-resident related parties. Similarly, this applies to Rwandan PE’s with non-residents persons in states that provide beneficial tax regimes. Beneficial tax regime countries include those that offer preferential income tax rate lower than 20%, grant tax breaks etc.
In Rwanda, a PE refers to a fixed place of business where a person’s business is wholly or partially carried on.
Types of Controlled Transactions
Some of the transactions subject to transfer pricing adjustment under the TP rules include;
- Sale or purchase of goods
- Provision of services
- Transfer and leasing of tangible assets
- Rights of intangible assets
- Financial assistance
- Any transaction affecting the profits of an entity/person.
Methods of Transfer Pricing
The methods recommended under the TP rules include;
- The Comparable Uncontrolled Price (CUP) Method
- The Net Cost Plus (NCP) Method
- Resale Price Method (RPM)
- Transactional Net Margin Method (TNMM)
- Transactional Profit Split Method.
The rules provide for use of an alternative method provided that none of the approved methods cannot apply on the transactions for computing the arm’s length range and the results yielded may be as those of independent parties.
Transfer Pricing Documentation Requirements
It is mandatory for companies involved in controlled transactions to prepare and maintain a Transfer pricing Policy Document supporting the conditions of the controlled transactions and the relevant arm’s length pricing ranges relevant to the tax period within which the controlled transaction is actually carried out.
There are no requirements for companies to file their TP documents while filing their annual company returns.
However, companies are required to produce and submit their TP policy to RRA upon notice of request within a period of 7 days.
Similarly, for companies trading with the related persons in other countries, it is mandatory for them to submit a schedule of the controlled transactions together with the annual income tax returns/ declarations to RRA.
Exemptions from TP Documentation Requirements
Companies whose annual turnover is less than 600 Million FRW (approximated to USD 600,000) will be exempted from preparing the TP documentation. They will be required to comply with the turnover declaration requirements.
In addition, the value of the related party transaction should be below 10 million FRW (approximated to USD 10,000) or the aggregate value of the related party transaction should be below 100 million FRW (approximated to USD 100,000).
Country by Country Reporting
It is a requirement for companies that are part of multinational groups to declare the group information by filing documents relating to the group organizational structure indicating all the companies, their shareholding and the management structure. These reports should include information about the sharing of revenues, distribution of assets and other resources within the group and allocation of employees.
This report is filed within the first 12 months after the end of the reporting fiscal year for the multinational group.
The introduction of these Transfer Pricing Rules indicates how keen the Rwandan Government has been on trading activities by Multinational Enterprises within the region. It is prudent that Multinational Enterprises with intentions to or already established in Rwanda should operate in compliance with these Transfer Pricing regulations and avoid mispricing practices. The content of this document is prepared for public knowledge only and no decision should be made based on it. Should you require any professional advice, contact us for assistance