This alert summarises the key changes in the Revised Income Tax Treaty.
Both Singapore and Indonesia have ratified the revised Agreement for the Elimination of Double Taxation with respect to taxes on income and the prevention of tax evasion and avoidance (Revised Income Tax Treaty) that they signed on 4 February 2020. The Revised Income Tax Treaty entered into force on 23 July 2021.
As a recap, the pertinent changes in the Revised Income Tax Treaty include:
► A preamble describing the intent of the two Contracting States to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion and avoidance, as well as an anti-treaty abuse provision based on the principal purpose test (PPT). These are requirements under the Organisation for Economic Cooperation and Development (OECD) Base Erosion Profit Shifting (BEPS) Action 6, one of the four minimum standards that BEPS Inclusive Framework members are to adhere to.
► A new provision to allow for corresponding adjustments in relation to transfer pricing under Article 9 – associated enterprises.
► Lower branch profit remittance tax rate of 10% (down from 15%).
► Lower royalty withholding tax rate of 8% or 10% (down from 15%).
► Capital gains tax exemption on disposal of shares in non-land rich companies.
