The income tax treaty between Cambodian and Indonesia was signed on 13 October 2017 by Cambodia and on 23 October 2017 by Indonesia. The treaty is the first of its kind between the two countries.
The treaty covers Cambodian tax on profit including withholding tax, additional profit tax on dividend distribution and capital gains tax, and tax on salary. It covers Indonesian income tax.
The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services through employees or other engaged personnel if the activities continue for the same or connected project within a Contracting State for a period or periods aggregating more than 183 days within any 12-month period.
Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a PE maintained by that resident in the first-mentioned Contracting State.
Note – The 10% withholding rate under Article 10 (Dividends) also applies as the maximum rate for the additional taxation of repatriated profits attributed to a permanent establishment. However, the final protocol to the treaty provides that this tax rate limit does not affect provisions contained in any production sharing contracts relating to oil and gas, and contract of works for other mining sectors, concluded by a Contracting State or its relevant state oil and gas company or any other entity thereof with a person who is a resident of the other Contracting State.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Both countries apply the credit method for the elimination of double taxation. Provisions are also included for a tax sparing credit for tax that would have been payable but has been exempted or reduced in accordance with the respective country's incentives laws on promoting economic development.
The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.
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