Indonesia has entered into double taxation agreements with several countries, including Ireland. The double taxation agreement (DTA) is designed to prevent the double taxation of income and capital gains arising in one country and paid to residents of the other country.
For Irish residents doing business or earning income in Indonesia, the double taxation agreement offers several benefits. Firstly, it ensures that they will not be taxed twice on the same income or capital gains. This is achieved by allocating taxing rights between the two countries, which are designed to ensure that the income is taxed only once.
Under the agreement, income from employment, including directors` fees, paid to an Irish resident working in Indonesia will be taxed only in Indonesia, unless the employment is carried out in Ireland. Similarly, business profits earned by Irish companies in Indonesia will be taxable only in Indonesia. However, if the Irish company has a permanent establishment in Indonesia, the profits will be taxed in both countries, but the DTA provides mechanisms for relief and for avoiding double taxation.
The agreement also covers dividends, interest, and royalties. Dividends paid by an Indonesian company to an Irish resident will be taxed at a maximum rate of 15%, but if the Irish resident owns more than 25% of the Indonesian company, the rate may be reduced to 10%. Interest paid by an Indonesian resident to an Irish resident will be taxed at a maximum rate of 15%, and royalties for the use of intellectual property will be taxed at a maximum rate of 10%.
The DTA also provides for the exchange of information between the tax authorities of the two countries. This helps to prevent tax evasion and promotes transparency. It also provides for the mutual agreement procedure, which allows the two countries to resolve disputes arising from the interpretation or application of the agreement.
In summary, the double taxation agreement between Indonesia and Ireland provides Irish residents doing business or earning income in Indonesia with a measure of certainty and protection against double taxation. It ensures that income and capital gains are taxed only once and provides mechanisms for relief and dispute resolution. It is a valuable tool for Irish businesses seeking to expand into Southeast Asia and provides a stable framework for cross-border investment and trade.
