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Singapore: New income tax treaty with Indonesia

Singapore: New income tax treaty with Indonesia

Representatives of the governments of Singapore and Indonesia in February 2020 signed a new income tax treaty—one that introduces a capital gains article (not included in the existing treaty).

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The new income tax treaty between Singapore and Indonesia will enter into force once each country’s ratification processes are completed, and the treaty provisions will be effective at the very earliest as of 1 January 2021 if both Singapore and Indonesia complete their respective ratification processes in 2020.

As noted above, new in this treaty is a capital gains article that would grant Singapore the sole taxing right on gains from the sale of assets and shares, subject to certain exceptions. The new treaty also introduces a “principal purpose test” meaning that treaty benefits would not be granted if that benefit was one of the principal purposes of any arrangement or transaction.

Many of the provisions of the existing treaty also appear in the new income tax treaty—including:

  • Withholding tax rates of 10% or 15% for dividends
  • Withholding tax rate of 10% for interest income
  • Withholding tax rates of 10% or 8% for royalties (the 10% rate is a reduction from the 15% rate under the current treaty)
  • Withholding tax rate of 10% (reduced from the 15% rate under the current treaty) for the branch profits tax

The new treaty removes an exemption from withholding tax currently available under the existing treaty for interest paid on government bonds or debentures. Accordingly, the source country could impose withholding tax up to a rate of 10% on such income (as it would any other interest).

The new treaty also removes a limitation of relief on remitted income, but includes an expanded provision on the exchange of information.

Read a March 2020 report [PDF 305 KB] prepared by the KPMG member firm in Singapore

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