This content is from: Local Insights

Hong Kong tax treaty

On March 23 this year, Indonesia eventually signed a tax treaty with Hong Kong which was one of the blacklisted countries pursuant to old Indonesian Controlled Foreign Corporation rules. Although Indonesia has signed a tax treaty with China in 2001, Hong Kong was not covered in that treaty.

Similar to other treaties, the Hong Kong tax treaty provides various reductions in Indonesian tax rates, extensions of time tests and exchange of information procedures.

There are two particularly interesting clauses in the treaty: withholding tax rate on royalty is only 5%. This is the lowest withholding tax rate among all treaties signed by Indonesia. And the withholding tax rate on dividends in the event the shareholding percentage in the company paying dividend is 25% or more is also only 5% – the lowest withholding tax rate among all treaties signed by Indonesia.

The Indonesian government hopes this treaty will give the country access to various data of Hong Kong taxpayers rooting to Indonesia. The treaty will come into force after the procedures are ratified on both sides.

The Indonesian government will also issue a written confirmation on the acceptance of IRS' standard certificate of domicile although the Indonesian tax authority recently issued a regulation that requires all non tax residents provide a standard certificate of domicile if they wish to enjoy the relevant tax treaty.

The 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 was nullified by Supreme Court's decision no. 22/P/HUM/2009 dated one December 9 2009. All taxable profits from that transaction will be subject to normal income tax rate and treatment.

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