Legal Insights

New Indonesia – UAE tax treaty

13 Dec 2022

UAE Tax Treaty

Indonesia ratified the renegotiated tax treaty with the UAE (see Presidential Regulation No. 34 Year 2021, dated and effective from May 4, 2021). On August 19, 2021, Indonesia sent Diplomatic Notes to the UAE and, by doing so, all ratification documents had been exchanged. In DGT Circular Letter SE-57 dated December 31, 2021, it was announced that the treaty entered into force and applies to income received or obtained on or after January 1, 2022. The treaty includes various modifications under the MLI. Many of the existing treaty provisions remain, including the withholding tax (WHT) rates on dividends and royalties, and the Branch Profit Tax rate. Nevertheless, there are some interesting changes which are set out below.


Dividends paid to a Government of the other contracting state shall be exempt from tax. The WHT rate for interest payments to other (non-Government) parties was increased from 5% to 7%. A new provision (Article 12A) regarding technical services was introduced. Such fees are subject to a 5% WHT. The source country can tax capital gains derived from the sale of shares in entities if within a 365-day period prior to the sale, the entity derives at least 50% of its value directly or indirectly from immovable property located in the source country. This provision is in line with article 9 of the MLI.


The permanent establishment provision has been amended to reflect the adoption of some of the MLI principles, like e.g. the preparatory and auxiliary nature of certain activities and the dependent agent provision. The new treaty also contains a new preamble reflecting article 6 of the MLI and in Article 29 a principle purpose test as described in article 7 of the MLI is included, which deals with the prevention of treaty abuse. 

About the Author
Jacob Zwaan - Partner