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Mauritius Fails To Re-Negotiate DTA With Indonesia

by Lorys Charalambous, for, Cyprus

22 December 2004

Despite the best efforts of the Mauritian government, reports in the regional media this week have revealed that the cancellation of the avoidance of double taxation (DTAA) agreement between Indonesia and Mauritius will take effect on January 1, 2005, as previously announced.

The Indonesian authorities issued a circular this summer revealing that they had decided to terminate the DTA with Mauritius over concerns that under the terms of the agreement, non-Mauritian investors could, via offshore companies known as Special Purpose Vehicles (SPVs), invest in Indonesian companies and take advantage of the tax benefits afforded by the treaty as if they were resident in Mauritius.

The Mauritian authorities at the time said 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 will 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 will be imposed, rather than the previous zero rate afforded by the treaty.

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