India Business Setup and Market Entry — Overview
Cross-Border Taxation Between India and Indonesia: Practical DTAA Guide
The India–Indonesia Double Taxation Avoidance Agreement was signed to promote trade and investment between the two countries. The following serves as the major purpose of DTAA
-
Avoid double taxation on the same income.
-
Prevent tax evasion.
-
Facilitate cross-border investment and business.
The taxes covered include Income Tax and surcharge in India and Income Tax (Pajak Penghasilan) in Indonesia
Withholding Tax Rates
Tax withholding rates under DTAA are lower than domestic withholding rates. The maximum tax withholding rate is 10% for interest income, dividends, royalties, fees for technical services etc. It may be 10 to 15% for dividends based on shareholding
Permanent Establishment (PE)
A company from one country is taxed in the other country only if it has a Permanent Establishment (PE) there. Examples of PE include
-
Branch office
-
Factory
-
Construction project (usually >183 days)
Capital Gains
-
Gains from immovable property taxed where the property is located.
-
Gains from shares or securities usually taxed in the country of residence (with some exceptions).
India generally gives foreign tax credit for tax paid in Indonesia under Section 90 of the Income-tax Act.
Example
If an Indonesian company receives royalty from India:
-
India can tax it at max 10% DTAA rate
-
Indonesian company can claim foreign tax credit in Indonesia.
Documentation Required
1. A Tax Residency Certificate issued by the Income Tax Department proves that a person or company is a tax resident of a particular country.
2. Form 10F
3. Declaration of beneficial ownership
DGT Form
DGT Form stands for Directorate General of Taxes Form, issued by the Indonesian tax authority Directorate General of Taxes. It is used to claim reduced withholding tax rates under a tax treaty. Without this form, the Indonesian payer may apply higher domestic withholding tax rates.
Most businesses and individuals use DGT Form 1, which applies to individuals and companies. DGT Form 2 applies to banks and financial institutions . This form shall be filled by downloading the form online and then sent to the Indonesian payer to claim reduced withholding tax rates.
The form usually includes:
-
Name of foreign taxpayer
-
Country of residence (e.g., India)
-
Tax Identification Number
-
Type of income (dividend, royalty, interest, etc.)
-
Confirmation of beneficial ownership
-
Details of the Indonesian payer
It must also be supported by:
-
Tax Residency Certificate (TRC) from India
-
Signature of the taxpayer
-
Sometimes certification by tax authorities.
Proof for claiming Foreign Tax Credit
1. Foreign Tax Payment Certificate
This is the most important document. It can be:
-
Certificate issued by the foreign tax authority in Indonesia
OR -
Tax withholding certificate issued by the Indonesian payer
2. Form 67 (Mandatory in India)
To claim foreign tax credit, one must file Form 67 online with the Income Tax Department of India portal. Form 67 contains:
-
Country where tax was paid (Indonesia)
-
Nature of income
-
Amount of foreign tax paid
-
Tax credit claimed in India
Form 67 must be filed before filing the income tax return or before the due date.
3. Proof of Income earned abroad such as invoice issued to Indonesian customer, dividend statement, royalty agreement, interest payment agreement
4.Bank remittance proof
For detailed insights and practical guidance, visit our Knowledge Center and access our curated guides on India market entry: https://www.a2consultants.in/guides/india-market-entry-strategies-for-foreign-investors
Need a Structural Review of your business prospects in India? > If you are looking to pounce on the FTA opportunity and looking to review your business prospects . [Contact A2 Consultants for a Private Consultation as we have lot of European clients whom we are aleady helping in their business in India] https://www.a2consultants.in/home/book_slot
