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Double Taxation Agreement between Australia and Indonesia: What You Need to Know

Double taxation occurs when a taxpayer pays taxes on the same income in two different countries. This can happen when a person earns income in one country but is also considered a resident for tax purposes in another country. To avoid double taxation, many countries have entered into bilateral tax treaties, known as Double Taxation Agreements (DTAs). One such agreement is between Australia and Indonesia.

Overview of the DTA

The DTA between Australia and Indonesia was signed in 1992 and entered into force in 1993. Its purpose is to promote trade and investment between the two countries by eliminating double taxation on income, as well as preventing tax evasion and providing for the exchange of information between the two tax authorities.

Residency Based Taxation

The DTA establishes that residents of Australia and Indonesia will be taxed on their worldwide income in their country of residence. A resident is defined as a person who is subject to tax in that country under its domestic laws. Therefore, if an Australian resident earns income in Indonesia, that income will be taxed in Australia and vice versa.

Elimination of Double Taxation

The DTA provides for the elimination of double taxation in several ways:

– Exemption Method: Under this method, income earned in one country by a resident of the other country is exempt from tax in the source country. For example, if an Indonesian resident earns income in Australia, that income will be exempt from tax in Australia.

– Credit Method: Under this method, income earned in one country by a resident of the other country is taxed in the source country but the resident can claim a credit for the tax paid in the source country when calculating their tax liability in their country of residence. For example, if an Australian resident earns income in Indonesia and pays tax on that income in Indonesia, they can claim a credit for that tax when calculating their tax liability in Australia.

– Special Provisions: The DTA also provides for special provisions for specific types of income, such as dividends, interest, and royalties, to ensure that double taxation is eliminated.

Exchange of Information and Prevention of Tax Evasion

The DTA also provides for the exchange of information between the tax authorities of Australia and Indonesia. This allows each country to obtain information from the other country that is necessary for administering and enforcing their respective tax laws. The DTA also includes provisions for the prevention of tax evasion, such as the exchange of information on taxpayers who are suspected of tax evasion.

Conclusion

The DTA between Australia and Indonesia provides for the elimination of double taxation on income earned by residents of each country in the other country. It also provides for the exchange of information between the tax authorities of both countries and includes provisions for the prevention of tax evasion. The DTA promotes trade and investment between the two countries by providing for a more certain and predictable tax environment for businesses and individuals operating in both countries.