Indonesia-Singapore Effectively Applied the New Tax Treaty on 1 January 2022

The revision of the Double Taxation Avoidance Agreement (P3B) or tax treaty between Indonesia and Singapore is officially effective as of 23 July 2021. As for the implementation of the updated tax treaty will be effectively carried out by each country per 1 January 2022. 

This was confirmed by the Singapore Tax Authority, The Inland Revenue Authority of Singapore (IRAS) after officially ratifying the latest Indonesia-Singapore tax treaty.

For the first time, the Indonesia-Singapore Double Tax Avoidance Agreement has been revised after more than 30 years of the agreement. Although the signing of the tax treaty amendments has taken place on 4 February 2020, there is a time lag for the implementation until both countries ratify it.

In the new tax treaty, the Governments of Indonesia and Singapore agreed on the amendment of 8 (eight) of the following 10 (ten) tax treaty clauses: 

1. The branch profit, tax rate decreased from 15% to 10%
2. The royalty tax rate decreased from 15% to 10% and 8%
3. Strengthening of Production Sharing Contract (KBH) and Contract of Work (KK) arrangements
4. Tax exemption on interest income received by government institutions (government exemption)
5. Tax on government bond interest is regulated according to domestic regulations (maximum 10%)
6. Capital Gains on Asset Sales 
7. Anti-tax avoidance and evasion clauses 
8. Exchange of tax information

The tax rate on royalties is trimmed from 15% to 8% only for royalties on equipment and industry experience, trade, and science. Meanwhile, other royalties are set at 10%.

Regarding the tax exemption on interest received by government institutions, the two countries agreed to include the Sovereign Wealth Fund (SWF) and its subsidiaries as institutions that receive the tax exemption.

In addition, the provisions that exclude the imposition of taxes on government bonds are abolished. Thus, government bonds will be taxed according to domestic regulations, with a maximum rate of 10%. 

The two countries also agreed to include a tax clause on capital gains in the tax treaty, the implementation of which is in accordance with the 2017 OECD model. In this case, Indonesia-Singapore concurred to include an indirect transfer of assets clause and to give taxation rights to Indonesia for the transfer of shares traded on the Indonesian stock exchange.

Related to the mechanism for exchanging information, the two countries agreed to change the guidelines from the 1977 OECD model to the 2017 OECD model.

The Inland Revenue Authority of Singapore (IRAS)