Mauritius Hopes To Re-Start DTAA With Indonesia

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

16 August 2005

The Mauritian government is hopeful of relaunching discussions with the Indonesian government regarding the lapsed Double Taxation Avoidance Agreement between the two countries, said Finance Minister Rama Sithanen last week.

The Agreement lapsed on 1st January 2005 after the Indonesian government gave notice of termination in 2004 and refused to discuss the matter. "The reasons given were that, following an assessment and evaluation of the implementation of the treaty, the Indonesian government has concluded that there was an abuse that was inflicting a loss upon Indonesia. The letter referred specifically to those foreign companies that are registered in Mauritius as Global Business Licence companies and to our domestic legislation tht enabled them to obtain tax dispensation or nullification on their business income from Indonesia ", said Mr Sithanen.

Les démarches entreprises par le gouvernement, à travers le ministère des Affaires étrangères en vue d'amener les autorités indonésiennes à revoir leur position sur la question, n'ont donné aucun résultat pour l'instant.

The Mauritian authorities said initially in 2004 that they regarded the termination circular more as a request for re-negotiation of the treaty than an outright cancellation, although Minister for Economic Development, Financial Services and Corporate Affairs, Sushil Khushiram acknowledged that some changes needed to be made on a local level in order to address the problem.

In November, Deputy Prime Minister and Finance Minister, Pravind Jugnauth revealed that the Mauritian government was hoping to push for an extension of the DTAA, and explained that he had written to the Indonesian authorities asking for negotiations on the renewal of the pact to be opened. However, it appears that these pleas fell on deaf ears.

Following the cancellation of the DTAA on January 1, dividends from investments made in Indonesia via Mauritius face a withholding tax of 20% for substantial holdings, and 10% for portfolio holdings, in place of the previous 5% rate. In addition, a 5% Indonesian tax on sales and transfers is being imposed, rather than the previous zero rate afforded by the treaty.

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