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Indonesia-Singapore Updated Double Taxation Avoidance Agreement or Tax Treaty

Jakarta, 05/02/2020 MoF - Indonesia and Singapore signed the updated of the Double Tax Avoidance Agreement or tax treaty at the Bogor Presidential Palace, West Java Province, Tuesday (04/02). The tax treaty was signed by Indonesian Finance Minister Sri Mulyani Indrawati, and Singapore Finance Minister II Indranee Rajah. Indonesia and Singapore agreed to the tax treaty review which was previously signed on May 8, 1990 and took effect January 1, 1992.
Minister of Finance Sri Mulyani Indrawati conveyed the matters agreed upon in the new tax treaty namely the royalty tax from a single 15% to 10% tariff for copyrighted works of literature, art, and film and 8% for the use of industrial, commercial or scientific equipment. Then the second, the branch profit tax rate (an obligation that does not differentiate whether oil is for export or domestic use) is reduced from 15% to 10%.
These two tax reductions, both royalties and branch profit tax, are consistent with many tax treaties that have been signed by the Republic of Indonesia with partner countries. Singapore wants to be treated the same as other countries. The Indonesian government hopes that with this decline will attract more Singapore investment even higher.

Furthermore, the Minister of Finance said that Indonesia has its positive impact about the removal of the Most Favored Nation (MFN clause) which is an equal treatment for all members in the taxation of production sharing contracts and contract of work related to the oil, gas, and mining; and also more explicit arrangements regarding tax avoidance, anti-avoidance and tax evasion, and capital gains on asset sales, and exchange of information in accordance with international standards.
"Indonesia will get more measures that can be done to combat tax avoidance usually by our companies who use Singapore as its base," she said as quoted from the Cabinet Secretariat (Setkab) website.

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Minister of Finance continued, government institutions, if we are in Singapore, or Singapore government institutions work in Indonesia, get an interest tax exemption or tax exemption. This is an affirmation of the provision of tax exemptions on interest earned by government institutions of the two countries, including the Sovereign Wealth Fund and its subsidiaries.
Indonesia, added the President, also imposed an exchange of notes related to tax treaty and the elimination of the benefits of Indonesia-Singapore tax treaty for Permanent establishment (BUT) in third countries.

Minister of Finance said all of this was aimed at eliminating many tax loopholes which weakened Indonesia's position to obtain tax rights. So, according to the Minister of Finance, this tax treaty is expected to provide benefits to Indonesia in the form of greater investment from Singapore to Indonesia and close the gap from tax avoidance that has been happening all this time.
The new tax treaty will replace the old tax treaty and will be imposed after  the ratification process by the two countries first. (nr/ds)