Value-added taxes (VAT) is a tax that is charged on taxable sales

A company only has to collect VAT if they have annual revenues greater than 20 million in any tax year or 5 million in a calendar quarter

Companies registered for VAT must use a certified electronic billing machine (EBM) which generates receipts indicating the tax charged

VAT is charged at a rate of 18% and 0%

Some goods or services are considered exempted from VAT (medicine, education materials etc.)

An EBM receipt is a document that is delivered to a customer following payment to provide evidence that the payment was made. It generally contains following information

1.Your company ‘s TIN

2.Your customer’s TIN ( if have one)

3.Total Amount paid

4.The tax paid

5.SDC information ( SDC number, Date and receipt number)

If you work at a company that is VAT registered , you need to make sure that you provide an EBM receipt for each sale, and that you receive an EBM receipt for purchase.

For accountants, it is important to understand whether the quoted price includes or excludes VAT

Example:

Say a company sold a good for 100,000 excluding VAT

• When the company invoices the customer, it must receive 118,000 (100,000 + 18%)
• 100,000 is revenue and 18,000 represents the VAT which is due to the RRA
• Journal Entry

For accountants, it is important to understand whether the quoted price includes or excludes VAT

Example:

Say a company sold a good for 100,000 including VAT

• When the company invoices the customer, it will receive 100,000
• On this transaction, VAT is calculated as 15,254 (100,000 – 100,000/1.18 )
• 84,746 is revenue and 15,254 represents the VAT which is due to the RRA
• Journal entry

For accountants, it is important to understand whether the quoted price includes or excludes VAT

Example:

• When the company paying VAT to supplier, the journal entries looks like this
• Journal Entry

As you can see, Rwf118, 000 is paid to supplier but Rwf 18,000 can be recorded from the RRA when making the VAT filing

Note: If a company is not VAT registered, they can’t recover the VAT they paid. In this case, the VAT that was paid would be included as part of the expenses. Therefore, the Expense would be Rwf 118,000 and there would not be VAT recoverable.

The VAT that the company collects from customer is NOT revenue (teaser – what is the double entry of a sale of Rwf118,000 VAT inclusive)

VAT must be remitted to the RRA on a monthly or quarterly basis

For companies that collect VAT from customers, the VAT it pays to suppliers on purchases can be reclaimed

Example:

If a company collects 5,000,000 of VAT in a month but also pays 3,000,000 of VAT to suppliers, the company would input the amount it collected and paid on its declaration but would only need to remit 2,000,000 to the RRA

If a company collects and pays an equal amount of VAT in a tax period, the amount that would need to be remitted is 0

If a company paid more VAT than it collected, the company can get a refund

For companies with annual revenues of less than 200 million, VAT can be declared on a quarterly basis

For companies with annual revenues greater than 200 million, VAT must be declared on a monthly basis

Example of VAT declaration:

As a junior accountant you may be responsible for preparing VAT declarations