Indonesia: Ratification of tax treaties with UAE and with Singapore

Income tax treaties with UAE and with Singapore have been ratified

Income tax treaties with UAE and with Singapore have been ratified

Income tax treaties between Indonesia and the United Arab Emirates and between Indonesia and Singapore have been ratified pursuant to the ratification procedures in Indonesia.

UAE treaty

With regard to the income tax treaty with the UAE, certain provisions are consistent with those of the existing income tax treaty, such as withholding tax rates for dividends at 10% and for royalties at 5%. However, the new treaty reflects an increase in the rate of withholding tax on interest to 7% (increased from 5%).

The income tax treaty also includes several new provisions such as:

  • An exemption from tax on dividends paid to the government
  • A withholding tax rate of 5% on compensation of technical services
  • A right to levy tax on income from hydrocarbons in the country of source

In addition, there are amendments to adopt provisions related to the Multilateral Instrument (MLI) including an extension of the definition of permanent establishment; an exemption of capital gains on transfer of shares with less than 50% of immovable property; a conversion of the exchange of information to the 2017 OECD Model; and the introduction of the “principal purpose test.”

Treaty with Singapore

The new income tax treaty with Singapore also reflects changes to the withholding tax rates. For instance, the withholding tax rate on royalties is reduced to 10% or 8% (from 15%) depending on the type of royalty payment.

Another change reflects a reduced branch profit tax rate of 10% (reduced from 15%).

The new treaty also addresses the tax treatment of capital gains.

Read a September 2021 report [PDF 302 KB] prepared by the KPMG member firm in Singapore

 

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