Indonesia: Updates on DTAs with the Netherlands, Malaysia, and Armenia
Indonesia's protocol to its agreement with the Netherlands for the avoidance of double taxation (DTA) is effective from October 1 2017.
The Indonesian President issued Presidential Regulation No. 24 of 2017 on March 9 2017 to ratify the protocol to the DTA, signed in Jakarta on July 30 2015 (PR No. 24/2017), which amends the DTA signed on January 29 2002 in Jakarta. The key amendments , which are effective from October, include, among others:
The withholding tax (WHT) rate on gross dividend is revised from 10% to 5% if the beneficial owner is a company (other than a partnership) that directly holds at least 25% of capital of the company paying the dividends. Otherwise, a maximum of 15% rate shall apply;
The WHT rate on interest paid on a loan made for a period of more than two years or paid in relation to sale of credit of any industrial, commercial or scientific fittings is revised from 0% to 5%; and
Expansion of coverage of exchange of information, which increases the ability of a competent authority (CA) to request information on matters previously not available to them.
Furthermore, on August 4 2017, Indonesia's President also issued Presidential Regulation No. 77 of 2017 to ratify the protocol amending the DTA between Indonesia and Malaysia, which was signed in Kuala Lumpur on September 12 1991, as amended by the protocol signed in Bukit Tinggi on January 12 2006 (PR No. 77/2017). PR No. 77/2017 ratified the latest protocol amending the Indonesia-Malaysia DTA, which was signed on October 20 2011 in Lombok, West Nusa Tenggara. The key amendment includes expanding the coverage of the exchange of information provision, which increases the ability of a CA to request information on matters previously not available to them.
On a separate occasion, the Directorate General of Tax issued Circular Letter No. SE-19/PJ/2017 on July 26 2017 concerning the entry into force of the DTA between Indonesia and Armenia. The circular stated that the Indonesia-Armenia DTA, signed on October 13 2005 in Jakarta, is applicable from April 8 2016. However, the provisions under the Indonesia-Armenia DTA will only be effective on the following dates:
For taxes imposed in the origin countries, on income received on or after January 1 2017; and
For taxes on income and other capital, on the fiscal year commencing on or after January 1 2017.
The applicable WHT rates under the Indonesia-Armenia DTA are as follows:
Dividends received by an Armenian beneficial owner: 10% on gross dividends if the recipient is a company directly holding at least 25% of capital of the company paying the dividends. Otherwise, a 15% rate shall apply;
Interest received by an Armenian beneficial owner: 10% on gross interest;
Royalties received by an Armenian beneficial owner: 10% on gross royalties; and
Branch profit tax: 10% on profits of a permanent establishment after deduction of income tax. This rate will not affect provisions in each production sharing contract and working contract (or other similar contracts) related to oil and gas or other mining sector entered into by the Indonesian government/relevant oil and gas company or other entity and Armenian citizens or entities.
If the Armenian receiving dividends, interest, or royalties is not a beneficial owner, a WHT rate of 20% shall apply.
Ali Budiardjo, Nugroho, Reksodiputro, Law Offices
Tel: +62 21 250 5125