Without the agreement, the withholding tax rate on royalties paid to non-residents in Singapore is 10%, while in Indonesia the tax rate is 20%. The changes to the updated Singapore-Indonesia DTA would further enhance Singapore`s attractiveness as an investment hub in Indonesia and the flow of investment between Singapore and Indonesia. In addition to reduced withholding tax rates on royalties and after-tax income taxes, capital gains from eligible investments of Singapore tax resident investors should effectively no longer be taxed under Indonesian law on gross proceeds from the sale of unlisted shares, and the removal of the restriction on contract benefits relief would provide foreign investors with a broader view of the range of structuring options and offer the possibility to reinvest income and/or gains from investments without the need to transfer such income and/or profits to the investor`s country of residence in order to benefit from contractual benefits. The new contract adopts the “principal purpose test” provision to limit the abuse of contracts. The revised treaty will benefit businesses in Singapore and Indonesia and boost bilateral trade and investment flows between the two countries. The main changes include: (1) Income tax (Singapore – Indonesia) (Double Taxation Convention for the Avoidance of Double Taxation) Order 2021 (2) According to the TPP, tax authorities may refuse to apply contractual benefits if obtaining that contractual benefit was one of the main objectives of an agreement or transaction, unless it is established that the granting of that benefit in the given circumstances for the purpose and purpose the relevant agreement the provisions of the Commission would be compatible. (3) Section 10(25) of the Income Tax Act (4) Section 3 of the 1990 Protocol between the Government of the Republic of Singapore and the Government of the Republic of Indonesia (5) See: Article 10(6) of the Updated Singapore-Indonesia DTA Singapore`s domestic tax system is in itself a very attractive feature for international investors. With its tax-friendly policies such as exemption of foreign dividends, exemption of certain foreign income, no withholding tax on dividends paid to non-residents and no capital gains tax, Singapore is undoubtedly the most attractive global business hub and the most sought-after jurisdiction for holding companies. These aspects, combined with the DTA with Indonesia, constitute an interesting offer for the structuring of companies, which is the most effective from the point of view of tax planning. More details on the specific provisions of the Singapore-Indonesia tax treaty can be found on the IRAS website. General information on DTAs in Singapore is available in the Singapore Guide to Double Taxation Treaties (DTAs). In 1990, the first Singapore-Indonesian double taxation agreement was concluded. After nearly two years of negotiations, Singapore and Indonesia recently signed a new double taxation agreement (DTA) that will replace the old DTA.

The new DTA will enter into force after being ratified by both countries. The new version changes the rules on cross-border tax rates and replaces the general tax rates set out in the laws of both countries. The amended agreement aims to boost bilateral trade and investment flows between the two countries. The inclusion of the anti-abuse provision in the new Section 26 reflects both countries` commitment to ensuring that the object and intent of tax treaties are not misused for tax avoidance or double non-taxation. Similarly, the updated article on information exchange reflects the current climate in light of profit reduction and profit shifting initiatives, where joint exchange of information can reduce the frequency of tax treaty abuses. With the deletion of Article 22 (current) of the updated Singapore-Indonesia DTA with effect from 1 January 2022, investors resident for tax purposes in Singapore would no longer be required to transfer income to Singapore in order to benefit from the contractual benefits granted under the DTA, subject to the Strategic Objective (“TPP”) test(2). In addition, foreign income that is not transferred, received or considered to have been received in Singapore3 in Singapore is not subject to tax under Singapore`s domestic tax system. The contract does not deal with capital gains. The tax treatment of capital gains would then be subject to the national tax laws of each State, as provided for in Article 21 (i.e. income not expressly mentioned).

If capital gains are realized in Indonesia, Indonesia is entitled to tax. Singapore does not levy taxes on capital gains. Bilateral Investment Treaties (BITs) promote and protect investment between the two countries. Singapore and Indonesia signed a Bilateral Investment Agreement (BIT) on 11 October 2018. The BIT will protect the interests of investors and strengthen the close economic ties between Singapore and Indonesia. The BIT also establishes the rights, obligations and dispute settlement procedures for foreign investors from one country when operating in the other country. Singaporean companies operating in Indonesia enjoy protection and have access to international arbitration in the event of investment disputes. Indonesian companies operating in Singapore will benefit from similar investment protection. However, in some cases, this interest may be taxed in the country where it arises (i.e. country A).

For those situations, the Commission set an upper limit as follows. If the beneficial owner of the interest income resides in country B, the tax levied by country A may not exceed 10 % of the gross amount. Without the agreement, the withholding tax rate on interest income paid to non-residents is 15% in Singapore and 20% in Indonesia. According to the Commission, the withholding tax on interest in the two countries was only 10 per cent. The previous withholding tax rate for royalty payments was 15%. The new agreement reduced the tax rate to: The above provisions do not apply if the beneficial owner of the interest has a fixed PE or tax base in the Contracting State in which the payer resides and the interest paid is effectively linked to that PE or fixed tax base. If, by reason of the special relationship between the payer and the payee, the interest paid exceeds the amount that would otherwise have been paid, the provision of the contract shall apply only to that amount and any amount of interest overpaid shall be taxable under the laws of each Contracting State. Indonesia and Singapore signed a new tax treaty on 4 February 2020 (New Agreement). The new treaty was ratified by Indonesia on 11 May 2021 and entered into force after ratification by Singapore on 23 May 2021. July 2021. The new convention will replace the existing tax convention, which has been in force since 1992 (current convention) and will enter into force for most purposes on January 1, 2022.1 In this newsletter, we summarize the updated agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia on the elimination of double taxation with respect to taxes on income and the prevention of fiscal evasion and avoidance (” Singapore – Indonesia DTA”).

Representatives of the governments of Singapore and Indonesia signed a new tax treaty in February 2020, introducing an article on capital gains (which is not included in the existing contract). On the 23rd. In July 2021, the updated Double Taxation Convention (DTA) between Indonesia and Singapore entered into force, intensifying efforts to prevent tax evasion, increase the tax base and increase investment between the two countries. Indonesia and Singapore have extensive cooperation in various sectors, and total trade in goods between the two reached S$48.8 billion ($36.1 billion) in 2020. Singapore has been Indonesia`s largest foreign investor since 2014, with a total investment reaching S$13.2 billion ($9.7 billion) in 2020. In addition, there are about $300 billion in Indonesian assets in Singapore. The new agreement repeals a withholding tax exemption that is currently available under the existing agreement for interest on government bonds or debentures […].