The income tax treaty between Rwanda and Turkey was signed on 1 December 2018. The treaty is the first of its kind between the two countries.

Taxes Covered

The treaty covers Rwandan personal income tax, corporate income tax, withholding taxes, and tax on rent of immovable property and covers Turkish income tax and corporate tax.

Residence

The treaty includes the provision that if a company is a resident of both Contracting States, its residence for the purpose of the treaty will be determined by mutual agreement between the competent authorities, having regard to its place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors. If no agreement is reached, the company shall not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a permanent establishment maintained by that resident in the first-mentioned Contracting State.

Withholding Tax Rates

• Dividends - 10%
• Interest - 10%
• Royalties - 10%
• Technical Service Fees, including for any service of a technical, managerial, professional, or consultancy nature - 10%

Note - Article 10 (Dividends) includes the provision that where a company which is a resident of a Contracting State has a permanent establishment in the other Contracting State, the profits taxable under Article 7 (Business Profits) may be subject to an additional tax in that other State, but the additional charge shall not exceed 10% of the amount of those profits.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State;
• Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State; and
• Gains from the alienation of shares, other than the above, in a company that is a resident of the other State, unless the shares are quoted on a stock exchange in that other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Entitlement to Benefits

Article 29 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.