how to avoid double taxation in bali

A business must recognize the consequences of tax to prevent double taxation when moving funds abroad. Here is what you need to know.

A corporation must be mindful of the tax consequences when moving assets abroad. If proper protocols are not taken, double taxation would be enforced. The company could also be subject to fines. You will find out in this article how double taxation can be avoided in Bali.

What is Double Taxation in Bali?

Double taxation is when a citizen in separate states pays tax on the same income.

A Singaporean company, for example, has equity in an Indonesian company. The Singaporean corporation earns dividends as its shareholder. Then the Indonesian corporation passes funds to the Singaporean corporation. In Indonesia and Singapore, they pay tax if the Indonesian business does not comply with appropriate procedures.

Withholding Tax on Overseas Transactions

When moving profits overseas, companies must be aware of the taxes. The corporation shall pay taxes retroactively if the taxes are audited and determined to have been paid improperly. It may also be subject to fines. Many revenue forms are tax-restricted.

We detail some common examples of these below.

Withholding Tax on Dividends, Interest, and Royalties

For revenue from dividends, interest and royalty, the relevant withheld tax rates apply. On both of these, the tables below display tax rates.

Tax Rate on Dividends

Income recipient	Portfolio Tax Rate (<25% ownership)	Tax Rate on Substantial holdings (>25)
Resident Corporations	15%	N/A
Resident Individuals	10%	10%
Non-resident corporations and individual non-treaty	20%	20%

Tax Rate on Interest and Royalties

Income recipient	Interest or Royalties
Resident Corporations	15%
Resident Individuals	15%
Non-resident corporations and individual non-treaty	20%

Withholding Tax on Services Provided

Revenues deriving from service provision can also be taxable. Such services include the following:

·  Cinematography;

·  Advertising and marketing;

·  Related to software, or hardware, or computer systems including service and maintenance;

·  Website development and maintenance;

·  Internet-related services, including internet connections;

·  Storing, processing, distribution of data, information, and/or programs;

·  Installation of machines;

·  Maintenance of machines;

·  Maintenance of vehicles, land, water, and air;

·  Security and investigation; etc.

The Indonesian non-resident provider tax withholding limit in Indonesia is 2%. For services rendered outside Indonesia, this 2% tax rate does not apply. Unless sponsored by: The withholding tax limit on non-tax resident service providers is 20%;

·  Certificate of Domicile (DGT 1 form)

·  Certificate of Residence

Avoiding Double Taxation in Bali

Actual tax planning is necessary in order to prevent double taxation on transfers worldwide. A competent accounting service will tell you, like Kibarer development, about applicable tax laws. We also guarantee that we follow tax exemption procedures to discourage duplication of taxes.

Tax Treaties to Prevent Double Taxation

Tax arrangements are double-tax deals between the two countries. These deals will eliminate or reduce taxes on purchases abroad for taxpayers.

Indonesia has double taxation avoidance agreements with 67 countries. Including the following:

·  Australia

·  Canada

·  China

·  Hong Kong

·  India

·  Malaysia

·  New Zealand

·  Philippines

·  South Korea

·  Singapore

·  Spain

·  Taiwan

·  Thailand

·  United Kingdom

·  United States of America

·  Vietnam

The tables below show relevant tax rates from selected countries.

Tax rates on Dividends

Country	Tax Rate (Portfolio)	Tax Rate (Substantial)
Australia	15%	15%
Canada	15%	10%
New Zealand	15%	15%
Singapore	15%	10%
UK	15%	10%
USA	15%	10%

Tax rates on Interest and Royalties

Country	Interest	Royalties
Australia	10%	10%/15%
Canada	10%	10%
New Zealand	10%	15%
Singapore	10%	15%
UK	10%	10%/15%
USA	10%	10%

Double Taxation without a Tax Treaty

However, the avoidance of a tax treaty would not mean double taxes automatically. It depends on the laws of the nation of the beneficiary. Tax professionals from Kibarer development will inform you whether there is any possible way to prevent double taxation in other countries.

How to Use the Reduced Tax Rate in Bali

Companies must apply for tax exemption to enjoy reduced tax rates.

The Process to Apply for Tax Exemption in Bali

1.  DGT 1 Form and Certificate of Residence: A Certificate of Domicile (DGT 1 Form) and a Certificate of Residency must be prepared and submitted by the foreign agent. The foreign tax authority must issue the certificates. The DGT 1 form must also be signed and stamped by their tax authorities.

2.  Withhold taxes and submit the DGT 1 Form: Taxes must be withheld in Bali, and a DGT 1 form is submitted. Local businesses must submit the document by the time the withholding tax return is submitted.

If the company fails to request a form within the time defined in the DGT 1, 20 percent withholding tax shall apply to the respective amount. It is important to remember that it is unnecessary to qualify for a tax exemption on a retroactive basis. The business must apply before making the transfer.

Kibarer development will make it easy to apply the DGT 1 form and measure the taxes correctly. Our expert team will ensure that your payments' tax rates are lowered and that double taxation is eliminated.

Requirements for the DGT 1 Form

The foreign company must also meet certain conditions. Such conditions include the following:

The international party shall first conduct the following anti-treaty violation tests. These refer to all forms of income produced by Indonesia:

·  The entity has the same legal form and economic substance either in the entity’s establishment or the execution of its transaction;

·  The entity has its own management to conduct its business, and such management has an independent discretion; and

·  The entity has business activity other than receiving dividends, interest, royalties sourced from Indonesia

When producing profits in the form of dividends, interest or royalties, the international party shall conduct the following test of beneficial ownership, if necessary under the applicable tax treaty:

·  The entity is not acting as an agent, nominee, or conduit;

·  The entity has controlling rights or disposal rights on the income, the assets, or the rights that generate the income;

·  The entity bears the risk on its own assets, capital, or liabilities; and

·  The entity has no contracts which oblige the entity to transfer the income received to residents of a third country.

The accounting staff of Kibarer development will help you escape double taxes in Bali. We will help with the planning and application of the DGT 1 form to the Indonesian tax authorities. We would also help you measure and record your taxes accurately.