15/06/2010
INDONESIA'S TAX TREATY WITH HONG KONG
On March 23 this year Indonesia eventually signed a tax treaty with Hong Kong, one of the blacklisted countries under the old Indonesian controlled foreign corporation rules. Although a tax treaty was signed between Indonesia and the People’s Republic of China in 2001, Hong Kong was not covered in that treaty. Like other tax treaties, Indonesia’s tax treaty with Hong Kong provides various tax rate reductions, extensions of time tests and information exchanges procedures. The most interesting clauses in the treaty are the following: 1. Withholding tax rate on royalty is only 5%, which is the lowest withholding tax rate among all treaties signed by Indonesia; 2. Withholding tax rate on dividends in the event the shareholding percentage in the company paying dividend is 25% or more is also only 5%, which is the lowest withholding tax rate among all treaties signed by Indonesia. Indonesia is hoping that this treaty will enable it to have access to various data of Hong Kong taxpayers routing to Indonesia. The treaty will come into force after the completion of the ratification procedures on both sides. Separately, Government Regulation No. 17 of 2009 on taxation of income from derivative transactions in the form of futures contracts traded on the stock or commodity exchange has been nullified by Supreme Court’s decision number 22/P/HUM/2009 dated 9 December 2009. As such, all taxable profits from these transactions will be subject to the normal income tax rate and treatment. (by: Freddy Karyadi).