On July 23, 2021, the updated Indonesia-Singapore double taxation agreement (DTA) entered into force, strengthening efforts to prevent tax evasion, increase the tax base, and increase investments between the two countries.
Updating the DTA can further enhance Singapore’s status as a hub for international investments into Indonesia. There were three significant changes to the tax treaty, namely, the introduction of an article that provides capital gains tax protection, the reduction of withholding tax (WHT) on royalties, and the reduction in branch profit tax (BPT).
In addition to updating their tax treaty, the Indonesia-Singapore Bilateral Investment Treaty (BIT) came into effect on March 9, 2021, and replaces the previous BIT. Under the treaty, investors from both countries will enjoy specific legal protection, such as access to international arbitration, thereby safeguarding bilateral investments and boosting investor confidence.
Indonesia and Singapore have substantial cooperation across a variety of sectors, and total merchandise trade between the two reached S$48.8 billion (US$36.1 billion) in 2020. Singapore has been Indonesia’s largest foreign investor since 2014, with total investments reaching S$13.2 billion (US$9.7 billion) in 2020. Further, there is approximately US$300 billion worth of Indonesian assets in Singapore.
What are the key changes in the updated DTA?
o Introduction of the provision of capital gains article
o Reduction in the branch profit tax rate (BPT)
o Removal of limitation of relief to treaty benefits
o New provisions on anti-tax avoidance
o Exemption on interests for sovereign wealth funds and government-issued bonds
o Reduced withholding tax rates for royalties
Source: ASEAN Briefing
Author: Ayman Falak Medina
Original published date: 06 August, 2021
August 19, 2021
