Tax Treaty A tax treaty is an agreement between two or more countries by dividing the right to impose a tax on income derived from a state sourced by a resident or resident of another country. The purpose of this tax treaty is to avoid the imposition of double taxation and various tax evasion efforts arising from transactions between the two countries. One of the tax treaties that will be discussed is the Indonesian tax treaty with Singapore which was signed on May 8, 1990. The avoidance of double taxation on the tax object is as follows: • Immovable property, income from immovable property under Indonesian- Singapore tax treaty is taxable only from the country in which the immovable property is situated even though the owner of the immovable object is not a national of that State. • The operating profit earned by a business entity in a country under this agreement may only be imposed by the country of which the enterprise is domiciled, but if the enterprise carries on business in the form of a permanent establishment in the other Contracting State, it may be taxed by the State concerned. • Aircraft and shipping, for aircraft business and shipping taxation is different. The aircraft is taxable only to the country where the aircraft is from, while for the vessel during the voyage in the sea of the other country then the other country imposes a tax by deducting 50% which thereafter becomes the object of tax of the ship's originating state. • Companies which have privileges, in the case of privileged companies because the function of this enterprise is to participate in the management, supervision and capital participation of the enterprise of the other State may be liable for any additional profits. • Dividend, the taxation of dividends of a company which is domiciled in one country in the agreement if such dividends are granted to a national of one party, shall be taxable according to the tax law of that citizen. As for dividends whose shareholders are companies then the country where the place of domicile of the company may impose tax with the following provisions: ➢ 10% of the gross amount of the dividends, if the company has a 25% interest in the company. ➢ 15% of gross amount in any other case. The exception to this agreement is that as long as the Singapore government does not regulate the additional dividend tax, the dividend earned by an Indonesian business entity from a Singapore enterprise is not taxable. • Interest, for interest paid by a company domiciled in one of the countries in the treaty to not one of the nationals. The Agreement is subject to the tax of that citizen. For the collection of such taxes by being limited to (a) bonds, bonds, and other bonds; And (b) Loans, warranties or guarantees. State where a business entity is domiciled may impose a maximum of 10% tax. Other exceptions of interest are not taxable in respect of Indonesian or Singapore government affairs. • Royalties, paid from one country to a citizen of the other country are taxed from a citizen / entity of another country, but the country of origin of the royalty may levy a maximum tax of 15% of the gross amount of the royalties. • Independent employment, defined as professional services and other services. The tax imposed on such independent employment is derived, except within 90 days in the 12 months that such independent employment opens up services in the other country then the State may collect taxes. • Employment in the employment relationship, in the form of salaries, wages or remuneration derived from one of the countries shall be taxed from the country in which the citizen is originated, unless the national has settled in the country for 183 days. • The remuneration of directors, who work for a company not originating from the director's nationality against the benefits, is taxed as the enterprise is derived. In that case is the country referred to in this agreement. • Public figures and athletes, public figure activities or athletes conducted in a country under this agreement are subject to tax based on the place of such activity but the tax is not levied if the funds for such activities come from the government. • Pensioners, for pension funds obtained from work of a Contracting State in the treaty shall be taxable on the basis of the origin of the enterprise. • Government officials, in the case of remuneration other than government pension funds will be taxed according to the law of the officer who issued the tax.

Tax Treaty A tax treaty is an agreement between two or more countries by dividing the right to impose a tax on income derived from a state sourced by a resident or resident of another country. The purpose of this tax treaty is to avoid the imposition of double taxation and various tax evasion efforts arising from transactions between the two countries. One of the tax treaties that will be discussed is the Indonesian tax treaty with Singapore which was signed on May 8, 1990. The avoidance of double taxation on the tax object is as follows: • Immovable property, income from immovable property under Indonesian- Singapore tax treaty is taxable only from the country in which the immovable property is situated even though the owner of the immovable object is not a national of that State. • The operating profit earned by a business entity in a country under this agreement may only be imposed by the country of which the enterprise is domiciled, but if the enterprise carries on business in the form of a permanent establishment in the other Contracting State, it may be taxed by the State concerned. • Aircraft and shipping, for aircraft business and shipping taxation is different. The aircraft is taxable only to the country where the aircraft is from, while for the vessel during the voyage in the sea of the other country then the other country imposes a tax by deducting 50% which thereafter becomes the object of tax of the ship's originating state. • Companies which have privileges, in the case of privileged companies because the function of this enterprise is to participate in the management, supervision and capital participation of the enterprise of the other State may be liable for any additional profits. • Dividend, the taxation of dividends of a company which is domiciled in one country in the agreement if such dividends are granted to a national of one party, shall be taxable according to the tax law of that citizen. As for dividends whose shareholders are companies then the country where the place of domicile of the company may impose tax with the following provisions: ➢ 10% of the gross amount of the dividends, if the company has a 25% interest in the company. ➢ 15% of gross amount in any other case. The exception to this agreement is that as long as the Singapore government does not regulate the additional dividend tax, the dividend earned by an Indonesian business entity from a Singapore enterprise is not taxable. • Interest, for interest paid by a company domiciled in one of the countries in the treaty to not one of the nationals. The Agreement is subject to the tax of that citizen. For the collection of such taxes by being limited to (a) bonds, bonds, and other bonds; And (b) Loans, warranties or guarantees. State where a business entity is domiciled may impose a maximum of 10% tax. Other exceptions of interest are not taxable in respect of Indonesian or Singapore government affairs. • Royalties, paid from one country to a citizen of the other country are taxed from a citizen / entity of another country, but the country of origin of the royalty may levy a maximum tax of 15% of the gross amount of the royalties. • Independent employment, defined as professional services and other services. The tax imposed on such independent employment is derived, except within 90 days in the 12 months that such independent employment opens up services in the other country then the State may collect taxes. • Employment in the employment relationship, in the form of salaries, wages or remuneration derived from one of the countries shall be taxed from the country in which the citizen is originated, unless the national has settled in the country for 183 days. • The remuneration of directors, who work for a company not originating from the director's nationality against the benefits, is taxed as the enterprise is derived. In that case is the country referred to in this agreement. • Public figures and athletes, public figure activities or athletes conducted in a country under this agreement are subject to tax based on the place of such activity but the tax is not levied if the funds for such activities come from the government. • Pensioners, for pension funds obtained from work of a Contracting State in the treaty shall be taxable on the basis of the origin of the enterprise. • Government officials, in the case of remuneration other than government pension funds will be taxed according to the law of the officer who issued the tax.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Cost Of Taxation

Section: Chapter Questions

Problem 5PA

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Write the summary of following paragraph. Tax Treaty A tax treaty is an agreement between two or more countries by dividing the right to impose a tax on income derived from a state sourced by a resident or resident of another country. The purpose of this tax treaty is to avoid the imposition of double taxation and various tax evasion efforts arising from transactions between the two countries. One of the tax treaties that will be discussed is the Indonesian tax treaty with Singapore which was signed on May 8, 1990. The avoidance of double taxation on the tax object is as follows: • Immovable property, income from immovable property under Indonesian- Singapore tax treaty is taxable only from the country in which the immovable property is situated even though the owner of the immovable object is not a national of that State. • The operating profit earned by a business entity in a country under this agreement may only be imposed by the country of which the enterprise is domiciled, but if the enterprise carries on business in the form of a permanent establishment in the other Contracting State, it may be taxed by the State concerned. • Aircraft and shipping, for aircraft business and shipping taxation is different. The aircraft is taxable only to the country where the aircraft is from, while for the vessel during the voyage in the sea of the other country then the other country imposes a tax by deducting 50% which thereafter becomes the object of tax of the ship's originating state. • Companies which have privileges, in the case of privileged companies because the function of this enterprise is to participate in the management, supervision and capital participation of the enterprise of the other State may be liable for any additional profits. • Dividend, the taxation of dividends of a company which is domiciled in one country in the agreement if such dividends are granted to a national of one party, shall be taxable according to the tax law of that citizen. As for dividends whose shareholders are companies then the country where the place of domicile of the company may impose tax with the following provisions: ➢ 10% of the gross amount of the dividends, if the company has a 25% interest in the company. ➢ 15% of gross amount in any other case. The exception to this agreement is that as long as the Singapore government does not regulate the additional dividend tax, the dividend earned by an Indonesian business entity from a Singapore enterprise is not taxable. • Interest, for interest paid by a company domiciled in one of the countries in the treaty to not one of the nationals. The Agreement is subject to the tax of that citizen. For the collection of such taxes by being limited to (a) bonds, bonds, and other bonds; And (b) Loans, warranties or guarantees. State where a business entity is domiciled may impose a maximum of 10% tax. Other exceptions of interest are not taxable in respect of Indonesian or Singapore government affairs. • Royalties, paid from one country to a citizen of the other country are taxed from a citizen / entity of another country, but the country of origin of the royalty may levy a maximum tax of 15% of the gross amount of the royalties. • Independent employment, defined as professional services and other services. The tax imposed on such independent employment is derived, except within 90 days in the 12 months that such independent employment opens up services in the other country then the State may collect taxes. • Employment in the employment relationship, in the form of salaries, wages or remuneration derived from one of the countries shall be taxed from the country in which the citizen is originated, unless the national has settled in the country for 183 days. • The remuneration of directors, who work for a company not originating from the director's nationality against the benefits, is taxed as the enterprise is derived. In that case is the country referred to in this agreement. • Public figures and athletes, public figure activities or athletes conducted in a country under this agreement are subject to tax based on the place of such activity but the tax is not levied if the funds for such activities come from the government. • Pensioners, for pension funds obtained from work of a Contracting State in the treaty shall be taxable on the basis of the origin of the enterprise. • Government officials, in the case of remuneration other than government pension funds will be taxed according to the law of the officer who issued the tax.

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