Indonesia Will End Seychelles Tax Treaty

by Mary Swire, Tax-News.com, Hong Kong

07 March 2006

Indonesia is planning to end its tax treaty with the Seychelles due to round-tripping by Indonesian investors, the same problem that caused it to terminate its Mauritius treaty in 2004.

Indonesian investors are said to be setting up Special Purpose Vehicles (SPVs) in the Seychelles and using them as fronts for investment back into Indonesia, thereby avoiding Indonesian tax on profits, which can be remitted under the treaty to the Seychelles at a treaty tax rate of 10%.

Herry Sumardjito, the director of tax legislation and regulations at the Directorate General of Taxation, told the Djakarta Post that in future, Indonesia will no longer enter into tax treaties with countries or territories that serve as tax havens. "We are still considering the plan. The Seychelles is the last tax haven with which we still have a tax treaty," said Herry.

Indonesia has tax treaties with 46 countries, including Luxembourg. The tax treaty with the Seychelles was signed in September 1999, and is due to expire in 2009 if it is not extended.

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