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Foreign partners in Indonesia having lucrative tax dividends

The Indonesian government has set a tax of 7.5 percent on dividends received by foreign partners of the Indonesia Investment Authority (INA) under Article 26 of the Income Tax Law.

The 7.5-percent tax applies to investments of non-resident tax subjects during the ownership period and exit, Finance Minister Sri Mulyani Indrawati informed here on Monday as quoted by Antara News. As per the existing rule, (the tariff) under the income tax (law) Article 26 is set at 20 percent, or non-resident tax subject entities pay (tax) in accordance with the avoidance of double taxation agreement (P3B). But through the INA, it will be treated differently in that if the dividend is paid to foreign investors, it will be subjected to a 7.5-percent income tax.

The 7.5-percent tariff is relatively small compared to that imposed in other countries and the existing tariff of 20 percent.  The dividends received from the investment of non-resident tax subjects are liable to a 20-percent income tax under Article 26 of the tax law, or the tariff set in the avoidance of double taxation agreement.

Based on 71 avoidance of double taxation agreements that Indonesia has signed with other jurisdictions, the tariff averages 10 percent. The 7.5-percent tariff is expected to serve as an incentive for foreign investors to become INA partners since they will receive special treatment from the standpoint of the tariff, which is below the average tariff fixed under the avoidance of double taxation agreements.

(source: Antara news)

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