Tax Treaty Agreement Indonesia Singapore
Capital gains were not regulated in the previous DBA agreement. It has been modified in line with the Organisation for Economic Co-operation and Development (OECD) model. The OECD model is an agreement developed by OECD countries, which focuses on guiding tax issues during bilateral negotiations. The purpose of the DBAs is to reduce the double taxation of income in one jurisdiction that is that of a resident of another resident. The Agreement on Double Taxation between Singapore and Indonesia (DBA) provides for an exemption from double taxation in the situation in which income is taxed for both countries. Since 2013, OECD and G20 heads of state and government have begun a major review of international tax rules through the BePS (Base Erosion and Profit Shifting) project. The BEPS project aims to address artificial tax planning, including contractual abuses. In 2016, the MLI was set up to amend the current global network of tax treaties to implement the BEPS measures related to the contract. Singapore and Indonesia are signatories to the MLI, which came into force in Singapore on April 1, 2019, but has not yet been ratified by Indonesia. The new treaty also removes a limitation on the reduction of transferred revenue, but includes an expanded provision on the exchange of information.
COPS is one of the most important forms of legal agreements in the mining and energy industry. The COPS defines the right of investors to obtain permission to explore and obtain hydrocarbon resources from the host government, in addition to determining profit-sharing. Singapore and Indonesia have concluded several important agreements to remove barriers to economic cooperation and trade. These include the free trade agreement, the double taxation conventions and the bilateral investment agreement. These are briefly described below. Updating the agreement reduces withholding tax on branch royalties and profits. There is now a regulation on income tax on investments (capital gains) in addition to the inclusion of internationally agreed standards to resolve contractual abuses. Many provisions of the existing treaty are also included in the new income tax agreement – including: royalties that are incurred in a contracting state and paid to a resident of the other contracting state may be taxed in that other state.
Royalties are deemed to be incurred in a contracting state if the payer is established in that state. However, these royalties may also be imposed in the contracting state where they are created and under the law of that state, but if the beneficiary is the beneficiary of the royalties, the tax thus collected cannot exceed 15% of the gross amount of royalties. Royalties include payments of any kind received in exchange for the use or right to use copyright patents, trademarks, designs, plans, etc. If, because of the special relationship between the payer and the beneficiary, the royalties paid go beyond the amount that would otherwise have been paid, the provision of the contract applies only to that amount and any excessive amount of the licence is taxable under the legislation of each contracting state.