Each country has its own tax rules and regulations, but generally, income earned in a country is taxed there. This can lead to double taxation, where more than one country taxes the same income. Double taxation is a significant obstacle for cross-border trade, investment, and individuals working or living in different countries. To prevent this, countries enter into Double Taxation Avoidance Agreements (Perjanjian Penghindaran Pajak Berganda / P3B). These treaties between Indonesia and other nations help avoid double taxation, facilitating business and investment.
Tax treaties, or Double Taxation Agreements (DTAs), are agreements between two countries designed to avoid double taxation and prevent fiscal evasion. These treaties define the tax rights of each country over various types of income, such as dividends, interest, and royalties. For businesses and individuals, DTAs can provide relief from being taxed twice on the same income in both countries.
Indonesia has signed tax treaties with 71 countries, including key partners like the United States, United Kingdom, Australia, Canada, China, France, Japan, Germany, Singapore, Netherlands, and Malaysia. Each treaty offers specific provisions and benefits, typically based on the OECD Model Tax Convention. The following table shows a complete list of DTAs:
| Recipient | Withholding Tax | ||||
| Dividends | Interest | Royalties | Branch profits | ||
| Portfolio | Substantial holdings | ||||
| Algeria | 15% | 15% | 15/0% | 15% | 10% |
| Armenia | 15% | 10% | 10/0% | 10% | 10% |
| Australia | 15% | 15% | 10/0% | 15/10% | 15% |
| Austria | 15% | 10% | 10/0% | 10% | 12% |
| Bangladesh | 15% | 10% | 10/0% | 10% | 10% |
| Belarus | 10% | 10% | 10/0% | 10% | 10% |
| Belgium | 15% | 10% | 10/0% | 10% | 10% |
| Brunei | 15% | 15% | 15/0% | 15% | 10% |
| Bulgaria | 15% | 15% | 10/0% | 10% | 15% |
| Cambodia | 10% | 10% | 10/0% | 10% | 10% |
| Canada | 15% | 10% | 10/0% | 10% | 15% |
| China | 10% | 10% | 10/0% | 10% | 10% |
| Croatia | 10% | 10% | 10/0% | 10% | 10% |
| Czech Republic | 15% | 10% | 12.5/0% | 12.5% | 12.5% |
| Denmark | 20% | 10% | 10/0% | 15% | 15% |
| Egypt | 15% | 15% | 15/0% | 15% | 15% |
| Finland | 15% | 10% | 10/0% | 15/10% | 15% |
| France | 15% | 10% | 15/10/0% | 10% | 10% |
| Germany | 15% | 10% | 10/0% | 15/10% | 10% |
| Hong Kong | 10% | 5% | 10/0% | 5% | 5% |
| Hungary | 15% | 15% | 15/0% | 15% | 20% |
| India | 10% | 10% | 10/0% | 10% | 15% |
| Iran | 7% | 7% | 10/0% | 12% | 7% |
| Italy | 15% | 10% | 10/0% | 15/10% | 12% |
| Japan | 15% | 10% | 10/0% | 10% | 10% |
| Jordan | 10% | 10% | 10/0% | 10% | 20% |
| Korea (North) | 10% | 10% | 10/0% | 10% | 10% |
| Korea (South) | 15% | 10% | 10/0% | 15% | 10% |
| Kuwait | 10% | 10% | 5/0% | 20% | 10/0% |
| Laos | 15% | 10% | 10/0% | 10% | 10% |
| Luxembourg | 15% | 10% | 10/0% | 12.5% | 10% |
| Malaysia | 10% | 10% | 10/0% | 10% | 12.5% |
| Mexico | 10% | 10% | 10/0% | 10% | 10% |
| Mongolia | 10% | 10% | 10/0% | 10% | 10% |
| Morocco | 10% | 10% | 10/0% | 10% | 10% |
| Netherlands | 10/15% | 5% | 10/5/0% | 10% | 10% |
| New Zealand | 15% | 15% | 10/0% | 15% | 20% |
| Norway | 15% | 15% | 10/0% | 15/10% | 15% |
| Pakistan | 15% | 10% | 15/0% | 15% | 10% |
| Papua New Guinea | 15% | 15% | 10/0% | 10% | 15% |
| Philippines | 20% | 15% | 15/10/0% | 15% | 20% |
| Poland | 15% | 10% | 10/0% | 15% | 10% |
| Portugal | 10% | 10% | 10/0% | 10% | 10% |
| Qatar | 10% | 10% | 10/0% | 5% | 10% |
| Romania | 15% | 12.5% | 12.5/0% | 15/12.5% | 12.5% |
| Russia | 15% | 15% | 15/0% | 15% | 12.5% |
| Serbia | 15% | 15% | 10/0% | 15% | 15% |
| Seychelles | 10% | 10% | 10/0% | 10% | 20% |
| Singapore | 15% | 10% | 10/0% | 8/10 % | 10% |
| Slovakia | 10% | 10% | 10/0% | 15/10% | 10% |
| South Africa | 15% | 10% | 10/0% | 10% | 20% |
| Spain | 15% | 10% | 10/0% | 10% | 10% |
| Sri Lanka | 15% | 15% | 15/0% | 15% | 20% |
| Sudan | 10% | 10% | 15/0% | 10% | 10% |
| Suriname | 15% | 15% | 15/0% | 15% | 15% |
| Sweden | 15% | 10% | 10/0% | 10% | 10% |
| Switzerland | 15% | 10% | 10/0% | 10% | 10% |
| Syria | 10% | 10% | 10/0% | 20/15% | 10% |
| Taiwan | 10% | 10% | 10/0% | 10% | 5% |
| Tajikistan | 10% | 10% | 10/0% | 10% | 10% |
| Thailand | 20/15% | 20/15% | 15/0% | 15% | 20% |
| Tunisia | 12% | 12% | 12/0% | 15% | 12% |
| Turkey | 15% | 10% | 10/0% | 10% | 10% |
| Ukraine | 15% | 10% | 10/0% | 10% | 10% |
| United Arab Emirates | 10% | 10% | 0/5% | 5% | 5% |
| United Kingdom | 15% | 10% | 10/0% | 15/10% | 10% |
| United States of America | 15% | 10% | 10/0% | 10% | 10% |
| Uzbekistan | 10% | 10% | 10/0% | 10% | 10% |
| Venezuela | 15% | 10% | 10/0% | 20% | 10% |
| Vietnam | 15% | 15% | 15/0% | 15% | 10% |
| Zimbabwe | 20% | 10% | 10/0% | 15% | 10% |
For questions regarding your specific tax situation, reach out to our team of tax experts at SAS:
Permanent Establishment (PE) Rules: Tax treaties define what constitutes a permanent establishment in Indonesia, affecting whether foreign businesses are subject to Indonesian corporate income tax. Typically, a PE is established if a business has a fixed place of business or significant presence in Indonesia.
Eliminate Double Taxation: Most treaties ensure that income is not taxed twice by including provisions for either the exemption method or the credit method.
Exchange of Information: Treaties include clauses for exchanging information between tax authorities to prevent tax evasion and promote transparency.
Lower Your Tax Liabilities: Take advantage of reduced withholding tax rates on dividends, interest, and royalties to lower your overall tax burden.
Explore Tax Planning Opportunities: Utilize treaty provisions to structure your operations more tax-efficiently. Choosing the right jurisdiction for subsidiaries can lead to substantial tax savings.
Gain Certainty and Stability: Tax treaties provide a clear framework and legal certainty for international transactions, reducing the risk of unexpected tax liabilities.
Consult with Tax Professionals: Navigating the complexities of tax treaties can be challenging. Engage with tax professionals who have expertise in international taxation and Indonesian tax law to maximize treaty benefits. Speak with a tax professional today.
Stay Informed: Tax treaties can be subject to renegotiation and changes. Stay updated on the latest developments to ensure compliance and optimization of tax strategies.
Maintain Proper Documentation: Submit all necessary paperwork to claim treaty benefits. This includes tax residency certificates and proper declarations.
Indonesia's extensive network of tax treaties presents significant opportunities for businesses and individuals to optimize their tax obligations. By leveraging key provisions and benefits, you can make informed decisions that enhance your financial efficiency and compliance. Whether you are setting up a business or becoming a tax resident in Indonesia, utilizing tax treaties effectively is a crucial aspect of your overall tax strategy.
For more detailed guidance tailored to your specific situation, consult with our tax specialists. We can provide personalized advice based on your business needs and objectives. Reach out today and optimize your tax strategy with expert help.
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