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Indonesia-Laos

3 March 2017

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Tax Treaty between Indonesia and Laos in Force

The income tax treaty between Indonesia and Laos reportedly entered into force on 11 October 2016. 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%

Article 10 (Dividends) also provides that a Contracting State may impose an additional 10% tax on profits of a permanent establishment, unless the permanent establishment reinvests such branch profit in that Contracting State.

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. In respect of dividends received by a Laos resident company that owns at least 10% of the shares of the paying company, the credit will take into account the Indonesia tax paid on the profits out of which the dividends are paid.

A tax sparing credit is also provided for tax that would have been paid if not exempted or reduced in accordance with the special incentive laws designed to promote economic development in the respective Contracting State.

Effective Date

The treaty applies in respect of withholding taxes from 1 January 2017 and in respect of other taxes from 1 January 2018.

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