Double Taxation Agreements (DTAs) in Indonesia

Double Taxation Agreement (DTA)Double Taxation Agreements, or DTAs, are crucial instruments that protect global investors from being taxed twice on the same income—once in their home country and again in the foreign country where they generate income. These agreements offer vital tax relief for businesses and individuals.

 

Benefits of DTAs

DTAs are designed to achieve several key goals:

Preventing Double Taxation

DTAs ensure that income is not subject to taxation in both the source and residence countries.

Tax Rate Reduction

They often reduce withholding tax rates on cross-border payments, including dividends, interest, and royalties.

Exchange of Information

DTAs enable the sharing of tax-related information between countries to combat tax evasion.

Countries with DTAs

Indonesia has entered into DTAs with a significant number of countries. These agreements primarily focus on reducing or exempting withholding tax rates on various types of income, such as dividends, interest, and royalties. The list of countries with DTAs includes:

  • Algeria
  • Armenia
  • Australia
  • Austria
  • Bangladesh
  • Belarus
  • Belgium
  • Brunei
  • Bulgaria
  • Cambodia
  • Canada
  • China
  • Croatia
  • Czech Republic
  • Denmark
  • Egypt
  • Finland
  • France
  • Germany
  • Hong Kong
  • Hungary
  • India
  • Iran
  • Italy
  • Japan
  • Jordan
  • Korea (North)
  • Korea (South)
  • Kuwait
  • Laos
  • Luxembourg
  • Malaysia
  • Mexico
  • Mongolia
  • Morocco
  • Netherlands
  • New Zealand
  • Norway
  • Pakistan
  • Papua New Guinea
  • Philippines
  • Poland
  • Portugal
  • Qatar
  • Romania
  • Russia
  • Seychelles
  • Singapore
  • Slovakia
  • South Africa
  • Spain
  • Sudan
  • Sweden
  • Switzerland
  • Syria
  • Taiwan
  • Tajikistan
  • Thailand
  • Tunisia
  • Turkey
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States of America
  • Uzbekistan
  • Venezuela
  • Vietnam
  • Zimbabwe

 

Who Benefits from DTAs?

DTAs apply to individuals and entities resident in one or both of the contracting states. For taxation purposes, a person is considered a tax resident in Indonesia if they meet specific criteria related to their presence, interests, and residence in the country.

 

Claiming DTA Benefits

To claim benefits under a DTA, applicants must provide a Certificate of Domicile (CoD) to the local tax office. This document, required by the tax treaty partner country or Indonesia’s Directorate General of Taxes, ensures that the party is entitled to tax benefits.

 

Anti-Treaty Abuse Tests

Applicants must also fulfill anti-treaty abuse tests, which apply to all income types derived from Indonesia. These tests assess factors such as the entity’s economic substance, management team, and discretion in conducting transactions.

 

Beneficial Ownership Test

The beneficial ownership test prevents entities from acting as agents or nominees and ensures they have controlling rights over the income-generating assets.

 

Taxable Income Covered by DTAs

DTAs address various types of income, including dividends, interest, and royalties. The tax rates for these income streams depend on the specific DTA partner and can range from zero to 20 percent, offering significant tax advantages to investors and businesses operating internationally.