By Vlad Cuc, specialist in company formation matters
Hong Kong signed a double taxation agreement (DTA) with Indonesia in March 2010, which entered into force in March 2012 and had effect in Hong Kong starting with 1st of April 2013. The agreement, which has also the purpose to prevent fiscal evasion, offers tax benefits for both states. Our specialists in company formation can provide you with specific information on how you can benefit of the new tax provisions, if you are a foreign investor interested in opening a company in Hong Kong.
An Outlook on the Hong Kong- Indonesia DTA
The agreement offers better tax conditions for investors, modifying the meaning of a permanent establishment, the withholding tax on income, capital gains or the branch profits; our representatives in company formation can provide you with an in-depth presentation on the new provisions from which your company registered in Hong Kong may benefit of. According to the new treaty, residents from Hong Kong receiving income from Indonesia will be subjected to a 10% withholding tax on income, decreasing the tax rate from 20%. If a Hong Kong company owns at least 25% of the share capital of a Indonesian company, the withholding tax can be lowered to 5%. If you need tax advice when setting up a company in Hong Kong, you can rely on our team of local incorporation experts.
Main Provisions of the Hong Kong – Indonesia Treaty
• permanent establishment, under the new treaty, will also include services of an enterprise, applicable where the services continue for a period of minimum 183 days in a 12 months period;
• the interest rate, applicable to a Hong Kong company deriving income from Indonesia, will be established at 10%, but for several Hong Kong institutions the treaty states a 0% interest rate on income;
• Hong Kong residents receiving royalties from Indonesia, under the previous treaty, were subjected to a 20%withholding tax on royalties but under the new DTA, the withholding tax on royalties will be applied at 5%;
• Hong Kong airlines companies which have commercial routes to Indonesia will be taxed with the Kong Kong corporate rate, while the international shipping transport profits, which are earned by Kong Kong residents who operate in Indonesia, will be subjected to a 50% reduction tax, paid under the Indonesian tax laws.
Our specialists in setting up companies in Hong Kong can offer you in-depth information about the provisions of the new double tax treaty, providing you with relevant details, according to the type of company registration you are interested in.
If you need further consultation on the Singapore – Indonesia double tax treaty, please contact our specialists in company formation.