For those investing in Bali, one of the recurring questions is how to optimize your investment and personal tax (property, business). The tax treaty Dubai Bali highlights some similarities between Dubai and Bali, making it not rare to see investors holding investments in both Bali and Dubai simultaneously. Both destinations have tax facilities and allow business owners and investors to transit and transfer money to Bali and Dubai.
Tax treaty between Bali and Dubai
The United Arab Emirates (UAE) and Indonesia had a tax treaty in effect on January 1st, 2022. Both countries completed the ratification process in 2021 and it has been an important change in the way to approach investment and trading between Dubai and Bali.
Tax on Dividend
A company incorporated or resident KITAS holder in Indonesia and Bali has to pay 10% tax on dividends as a resident and 20% as non resident.
A company incorporated in Dubai or individuals don’t have to pay tax on dividends. As Singapore, Dubai is a paradise for non resident investors.
In addition, the tax treaty between Dubai and Bali offers an interesting tax rate 10%, which is the same tax rate as a resident in Indonesia. Dubai business owners holding companies in Bali will pay only 10% tax on their dividend while Indonesian tax payers will be taxed at 10% while they will declare their annual income tax.
Tax on Interests
In some ways contracting a loan between subsidiary companies and the mother company can be more interesting than injecting money directly and paying a dividend. Some companies looking for investors use the loan technique to get investment.
Based on the treaty between UAE and Indonesia, a company has to pay 7% tax on the interest rate. This withholding tax is to avoid capital without taxation. The previous tax rate was 5%.
Read also: Taxation in Indonesia: How Businesses And Individuals Can Save And Comply
Tax on Royalties and Branch office
Asset owners receiving royalties from companies in one of the countries are subject to a tax of 5%.
Subsidiary companies sending a royalty to their mother company for using a pattern or trademark etc have to pay also a tax of 5%.
Double Taxation Relief
Indonesia and the United Arab Emirates (UAE) have a double taxation agreement in place. This helps to avoid companies and individuals from being taxed on the same income in both countries. The agreement makes business and investment between the two nations more attractive.
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Tax Comparison between Dubai and Bali
| Dubai | Bali | |
| Dividend | 0% | 0% after 3 years if the dividend is reinvested 10% for resident 20% for non resident |
| Royalties | 0% | 15% for resident 20% non resident |
| Interest | 0% | 20% for Permanent establishment and non resident10% for individual resident |
| Corporate income tax | 0% up to USD 100 000 9% above USD 100 000 | 0.5% up to USD 300 000 on income11 to 13% above 4.8 billion IDR |
| Personal income tax | none | Progressive rate |
Invest in Dubai or Bali
Investing in Bali from Dubai is possible as an individual or through a company. The tax treaty between UAE and Dubai from 2021 makes this structure advantageous for the taxpayer. While Indonesia used to tax at 20% non resident, this treaty reduced the tax to 10% on dividend treating Dubai company and resident as Indonesian resident. Foreign investment in Indonesia and Dubai plays an important role in this scenario.
At the same time the money sent by a Dubai company to an Indonesian company will not be taxed. Interesting point of this comparison is the interesting tax rate on companies in Bali.
While Dubai tax at 9% companies with income, Bali appears to be more advantageous for new companies with a tax rate at only 0.5% on the revenue the first 3 years under conditions
Bali and Indonesia also have interesting tax facilities with no taxation on dividends when those dividends are reinvested in the economy or the company.
Contact us to know more if you want to open a company in Bali and hesitate between Bali and Dubai.
Read also: The Latest Guide to Corporate Income Tax in Indonesia [2024]
FAQ
1. What is the significance of the tax treaty between Bali and Dubai for investors?
The tax treaty between Bali and Dubai, effective from January 1st, 2022, offers significant advantages for investors. It reduces the tax rate on dividends for Dubai-based companies and residents investing in Bali from 20% to 10%, aligning them with Indonesian residents.
2. How does the tax treaty impact dividend taxation for companies and individuals?
Companies incorporated or holding KITAS in Indonesia and Bali are subject to a 10% tax rate on dividends as residents and 20% as non-residents. However, companies incorporated in Dubai or individuals are exempt from dividend taxation, making Dubai an appealing destination for non-resident investors.
3. What are the tax implications for interests under the treaty?
According to the UAE-Indonesia tax treaty, companies are required to pay a 7% tax on interest rates paid to third parties, up from the previous rate of 5%. This withholding tax aims to prevent capital from being transferred overseas without taxation.
