From The Jakarta Post http://www.thejakartapost.com/detailheadlines.asp?fileid=20060111.B10&irec=9 RI, Malaysia flesh out treaty on double taxation
Rendi A. Witular, The Jakarta Post
President Susilo Bambang Yudhoyono is slated to sign a memorandum of understanding (MOU) with visiting Malaysian Prime Minister Abdullah Ahmad Badawi this week to expand the current agreement on the avoidance of double taxation.
Minister of Foreign Affairs Hassan Wirayuda said on Monday the measure was needed because the current agreement was no longer sufficient to accommodate the interests of the business community in the two countries.
"The revision is to boost business activities between the two countries, and to accommodate our new tax laws," he said, adding the MOU would be signed during Badawi's informal visit to Bukittinggi, West Sumatra, from Jan. 12 to Jan. 13.
Minister of Finance Sri Mulyani Indrawati said the deal would cover double taxation for proceeds derived from dividends, royalties and transfer of funds.
However, it would not cover transactions conducted in the offshore financial center island of Labuan, she added.
The island tax haven is a federal territory of Malaysia, which is strategically located close to Brunei Darussalam in the South China Sea.
Both ministers declined to provide further details.
In the original treaty signed in 1991, interest, dividends and royalties are subject to a reduced rate of withholding tax.
At present, the Indonesian government has signed a tax treaty with 54 countries, including Luxembourg, Tunisia, Algiers, the Ukraine, Slovakia, the Seychelles, Sudan, Syria, Uzbekistan and Mongolia.
A tax treaty with a foreign country is normally designed to avoid double taxation of that country's residents or companies operating in Indonesia, or Indonesian citizens or companies in the foreign country.
The treaty is also aimed at attracting foreign investors to participate in the country's financial sector, such as banking and the capital market.