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Indonesia-Laos

17 October 2016

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Indonesia Ratifies Pending Tax Treaty with Laos

Indonesia has published the decree ratifying the pending income tax treaty with Laos. The treaty, signed 8 September 2011, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Indonesia income tax, and Lao tax on profits (income) of enterprises and organizations, and tax on income of individuals.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services in a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company directly holding at least 10% of the paying company's capital; otherwise 15%
  • Interest - 10%
  • Royalties - 10%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares of the capital stock of a company, or of an interest in a partnership or a trust, the property of which consists principally of immovable property situated in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Limitations on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest), 12 (Royalties) and 13 (Capital Gains) will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of any share, debt-claim, property or right in respect of which the income is paid or gains are derived was to take advantage of these Articles by means of that creation or assignment. The limitation is included in each of the Articles.

Double Taxation relief

Both countries apply the credit method for the elimination of double taxation.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged, and will apply in respect of withholding taxes from 1 January of the year following its entry into force, and in respect of other taxes from 1 January of the second year.

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