Investors (mainly foreign) are generally keen to know if, if they set up their business in Rwanda, they will freely open local and/or foreign bank accounts. Are they able to transact in foreign currency, can they borrow in foreign currency from non-resident lenders to finance their activities, and most importantly, whether they would face exchange controls if they decided to expatriate the proceeds of their investments such as current income linked to investments made locally (dividends) or surplus from the liquidation of the capital invested in their Rwandan entities.
All the above issues are governed by Regulation No. 42/2022 of 13/04/2022, which liberalizes capital account transactions and establishes the rules relating to the management of foreign exchange transactions in Rwanda (the “New Forex regulations”).
This regulation was published on April 18, 2022 and repealed Regulation No. 05/2013 of 10/21/2013 governing foreign exchange transactions (as amended to date, the “Repealed Forex Regulations”).
Although the new foreign exchange regulations have brought about some more salient changes, I will focus on prohibiting the pricing and sale of goods or services in foreign currencies by persons other than institutions licensed or otherwise authorized by the central bank to negotiate foreign currencies such as banks, depository microfinance institutions, currency exchange, among others.
This subject is certainly of great interest to the general public (not necessarily investors) because the latter is largely involved in the buying and selling of goods and services on a daily basis.
Under Article 4 of the repealed Forex Regulations, only unauthorized persons (such as hotels, casinos, duty-free shops, duly registered travel or tourist agencies) who, as part of their activities, regularly dealing with non-residents were authorized to receive foreign currency. in their operations.
This provision was in accordance with Article 37 of Law No. 48/2017 of 23/09/2017 governing the National Bank of Rwanda (the “NBR law”) which provides that “[b]banknotes and coins issued by the BNR are legal tender in the territory of the Republic of Rwanda”. This article further states that “[a]All obligations or monetary transactions contracted or carried out in the Republic of Rwanda are deemed to be denominated and settled in Rwandan Franc, unless otherwise provided by law or legal agreement between the parties.”
A harmonized reading of the foregoing provisions suggests that before the publication of the new Forex regulations, all monetary transactions entered into or carried out in Rwanda (by unlicensed persons) had to be priced and executed in Rwandan Francs unless the beneficiary regularly trades. with non-residents.
Two things, however, remained unclear in Article 4 of the Repealed Forex Regulator: (i) what “dealing regularly with non-residents” implied in terms of the number of non-residents and how often to deal with them in order to qualify for the exception under the aforementioned section; and (ii) whether, in the event that a person regularly deals with non-residents, he may lawfully receive foreign currency from Rwandan residents on the basis that he regularly deals with non-residents in discrete transactions.
It should also be noted that neither the Central Bank Act nor the repealed forex regulations (which generally prohibit unauthorized persons from trading in foreign currencies) provided penalties for the pricing and sale of goods and services in foreign currencies without complying with the relevant requirements provided for by the same instruments. This lack of specific repercussions made the ban pointless and could easily be ignored.
The new regulations have brought some clarity to the issues discussed above.
Article 32 mainly states that “[p]The sale of goods and services in foreign currencies is prohibited and punishable by law and unless otherwise provided in these regulations..” Article 4 of the same regulation also specifies that “…unlicensed persons must apply to the Central Bank for permission to conduct foreign currency transactions depending on the needs and types of activity.”
The regulations further provide that foreign currency received by unauthorized authorized persons must either be credited to a foreign currency account, sold to an authorized intermediary, or used to settle external obligations through authorized financial institutions.
The above provisions, read in conjunction with Article 37 of the BNR Law, suggest that no one is permitted to engage in foreign currency transactions in Rwanda unless they are an approved intermediary or otherwise authorized by the central bank. .
This means that it is now superfluous to determine whether a person who receives foreign exchange regularly deals with non-residents, although the central bank will probably take this factor into account before granting said authorization.
In addition, unlike the old regulations, the new law provides penalties for pricing or selling goods or services in foreign currencies without central bank authorization.
Under article 34, paragraph 2, of the new law, any person who sells or prices goods or services in foreign currencies contrary to the provisions of this regulation is liable to seizure and confiscation of the amount involved in this transaction, and the seized amount is credited to the Treasury account.
Although the law clarifies the conditions required for an unauthorized person to be able to carry out transactions in foreign currencies as well as the corollaries of non-compliance with these conditions, it does not specify what the central bank will take into account in granting or refusing to grant the authorization, the documents or information to be provided when requesting authorization, and the deadlines within which the central bank must provide its response to the request.
It goes without saying that all of the above is very relevant for investors, especially for planning and transparency purposes.
For this reason, a directive dealing with the issues raised should be put in place to fill this gap.
The new forex regulations were very timely as they at least clarified that unlicensed persons (without any exceptions) are not allowed to trade in foreign currencies without central bank permission to do so.
The same clarity also pertains to the ramifications of failing to meet such a precondition.
The application and adequacy of the penalties provided by the new foreign exchange regulations with respect to the deterrence of unauthorized foreign exchange transactions is beyond the scope of this article.
The opinions expressed in this article are those of the author.
The author is a corporate lawyer at ENSafrica Rwanda
Telephone: +250 785 938 269
Twitter: @elieofficiallyin this report