Capital Gains, Branch Profits, Royalties: Updates to the Singapore-Indonesia Double Taxation Agreement

On 23 July 2021, the Agreement between the Government of the Republic of Singapore and the Government of the Republic of Indonesia for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (“Updated DTA“) entered into force, following Indonesia’s ratification of the Updated DTA on 11 May 2021. 

In its official statement, Indonesia’s Directorate General of Tax stated that the Updated DTA is meant to strengthen efforts to prevent tax evasion, protect and increase Indonesia’s tax base, and at the same time encourage increased investment from Singapore. Similarly, Singapore’s Ministry of Finance stated in its press release of 23 July 2021 that the Updated DTA would boost bilateral trade and investment flows between the two countries.

We examine some of the key changes arising from the Updated DTA below, including:

1. The new Article 13 on capital gains;
2. A reduction in branch profit tax;
3. A reduction in royalties tax;
4. Removal of exemption for interest paid on government bonds or debentures;
5. Abolishment of articles on income not expressly mentioned and limitation of relief;
6. Expanded exchange of information provisions; and
7. Application of the principal purpose test.