Company Incorporation Procedures and Taxation System In

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Chapter No

Table of contents

Description Page no1 Company registration procedure and its requisites in

Singapore 2010

Company incorporationprocedures and taxation

system

Singapore Dubai Indonesia

V I D E S H C O A L S E R V I C E S P V T L T D


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Table of contents

Chapter -1 Company registration procedure and its requisites in Singapore

Key facts about company registration

Documents required for company registration

Company registration procedure and timelineBusiness licenses application

Ongoing compliance requirements for companies registered inSingapore

Chapter -2 Singapore tax structureSingapore Income Tax: Corporate Tax Guide

Income tax rates and general tax exemptions

Contents of DTAs concluded by Singapore

Company Setup Requirements: Singapore vs Indonesia

Foreign Ownership

Minimum Statutory Requirements

Incorporation ProcedureIncorporation Time-line

Annual Filing Requirements

Company Formation by Foreigners

On a Final Note

Chapter -3 Indonesian business and its incorporation procedureSetting up Business Activities and a Company in Indonesia

Representative Office

Limited Liability Co or Perusahaan Terbatas (PT)

Incorporation of PMA Company

The process of incorporation of a new foreign direct

investment company:Taxation and Labor Law

Indonesian tax structure

Personal taxation

Jamsostek

Corporate taxationtax residence

Business profits

Deductions disallowed

Profit distribution

Deemed profit margins and deemed salaries

Special industries and activities

IncentivesIncorporation of company in indonesia

Chapter -4 Dubai and its prospectus in the business spectrumDubai and its prospectus in the business spectrum

Dubai introduction

Dubai joint venture company

Dubai public and private shareholding companies


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Dubai limited liability company

Dubai branches and representative offices

Dubai branches and representative offices of foreign

professional companiesDubai sole proprietorships


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Chapter 1Company registration procedure and

its requisites in Singapore


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Singapore Company Registration

Most companies in Singapore are registered as private limited liability companies (commonly

known as private limited companies). A private limited liability company in Singapore is a

separate legal entity and shareholders are not liable for the company's debts beyond the amount

of share capital they have contributed (hence the term limited liability). According to Singapore

Companies Act, any person (foreign or local) above the age of 18 can register a Singapore

company.

A properly structured private limited company in Singapore is a very tax efficient corporate body

and hence this form is the most common type of business entity registered in Singapore.

Before Singapore Company Registration

Key facts about company registration

Company Name : The name must be approved before incorporation of the Singapore company

can occur

Directors : A minimum of one resident director (a residentis defined as a Singapore Citizen, a

Singaporean Permanent Resident, or a person who has been issued an Entrepass, Employment

Pass, or Dependent Pass) is mandatory. There is no limit on the number of additional local or

foreign directors a Singapore Company can appoint. Directors must be at least 18 years of age

and must not be bankrupt or convicted for any malpractice in the past. There is no requirement

for the directors to also be shareholders i.e. non-shareholders can be appointed directors.

Shareholders : A Singapore private limited company can have a minimum of 1 and maximum of

50 shareholders. A director and shareholder can be the same or different person. The shareholder

can be a person or another legal entity such as another company or trust. 100% local or foreign

shareholding is allowed. New shares can be issued or existing shares can be transferred to

another person anytime after the Singapore company has been incorporated.

Company Secretary : As per Section 171 of the Singapore Companies Act, every company must

appoint a qualified company secretary within 6 months of its incorporation. It has to be noted

that in case of a sole director/shareholder, the same person cannot act as the company secretary.

The company secretary must be a natural person who is ordinarily resident in Singapore.

Paid-up Capital : Minimum paid-up capital for registration of a Singapore company is S$1.

Paid-up capital (also known as share capital) can be increased anytime after the incorporation of

the company. There is no concept of Authorized Capital for Singapore companies.


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Registered Address : In order to register a Singapore company, you must provide a local

Singapore address as the registered address of the company. The registered address must be a

physical address (can be either a residential or commercial address) and cannot be a PO Box.

Taxation

Singapore Income Tax

: Singapore registered companies enjoy very attractive tax exemptions and incentives.

This is one of the key reasons entrepreneurs from around the world prefer to form a company inSingapore. For more information on Singapore tax advantages available to a Singapore company,

refer to guide.( Please refer the taxation aspects in the document below.)

You must engage a professional firm to register a Singapore company. Singapore lawdoes not allow foreign individuals or entities to self-register a company.

Considerations for foreigners when registering a company in Singapore

Foreigners wishing to open a Singapore company, must take into consideration the following

points:

There is no requirement for you to obtain any special Singapore visa if you merely wantto incorporate a private limited company but have no plans to relocate to Singapore. You

are free to operate your company from overseas as well as free to visit Singapore on a

visitor visa whenever required to attend to company matters on a short-term basis. But

keep in mind that in such cases, you will need to find a local resident director since each

company must have at least one local director. Professional service firms offering

Singapore incorporation services often offer the services of a local nominee director for

this purpose.

If you plan to relocate to Singapore to operate your company, you are required to obtainan Employment Pass or Entrepreneur Pass work permit. For more details, refer toSingapore Work Permits guide. Once you have obtained your Singapore work permit,

you can act as the local resident director. Often, in order to expedite the company

formation, foreigners request their incorporation services firm to provide a local nominee

director on a temporary basis and then transfer the directorship after they have obtained

their work permit.

All company incorporation formalities (as well as work permit formalities, if required)can be handled without your having to visit Singapore. The only exception may be the

bank account opening, depending on the bank you choose. Many of the banks in

Singapore require physical presence of the company principals at the time of opening the

company bank account.

Company Name

Documents required for company registration

For the purpose of company registration in Singapore, the following information is required by

the company registrar:
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Brief Description of Business Activities Shareholders Particulars Directors Particulars Registered Address Company Secretary Particulars Memorandum and Articles of Association (MAA). Singapore Company Registrar

provides a standard MAA document that is suitable for most instances.

The incorporation service firm you engage will typically collect the following documents from

you in order to prepare the necessary company incorporation paperwork:

For non-residents: Copy of passport, overseas residential address proof, and other Know-Your-Client (KYC) information such as a bank reference letter, personal and businessprofile, etc.

For Singapore residents: Copy of Singapore identity card If the shareholder is a corporate entity: Copy of registration documents such as

Certificate of Incorporation and Memorandum & Articles of Association.

Note that officially endorsed translated versions must be provided for any non-English

documents.

Company registration procedure and timeline

Company registration procedure in Singapore is fully computerized by the Singapore Registrar

of Companies. As a result, the incorporation process is quick and efficient without

any bureaucratic red-tape involved. Under normal circumstances, the company can be

incorporated in 1-2 days.

There are two distinct steps involved in the Singapore company registration procedure: a)

Company Name Approval and; b) Company Incorporation. Both steps can be accomplished on

the same day assuming there are no delays related to the name approval or particulars of

directors/shareholders.

To set up a Singapore company, the proposed name for the company must be approved

first. Company name approval is obtained by filing the application with the Company Registrar.

Step 1: Name Approval


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The service firm you have chosen to register your company will do it for you as the first step in

the incorporation process.

Generally the name approval/rejection notification comes through in less than an hour unless the

proposed name has some certain words (such as bank, finance, law, media, etc.) that might

require the review and approval of a corresponding external government authority. If the name isreferred to an external authority, the name approval can get delayed for 1-3 weeks.

To improve your chances of quick name approval, make sure the name

is not identical or too similar to any existing local company names does not infringe with any trademarks is not obscene or vulgar is not already reserved

An approved name will be reserved for 60 days from the date of application. You can extend the

name for another 60 days by filing an extension request just before the expiry date.

Step 2: Company Registration

Once the name has been approved, the filing of the incorporation request as well as the approval

from the Registrar of Companies can be completed in a few hours assuming incorporation

documents are ready and have been signed by the directors and shareholders of the new

company.

There are cases when the incorporation procedure can get delayed if the shareholders or directorsare of certain nationalities, although this happens on a case by case only. The authorities might

require additional information about a shareholder or director before approving the incorporation

of the company. The approval of the company registration can get delayed for 1-2 weeks under

such circumstances.

A registration fee of S$300 is payable to the Singapore Registrar of Companies for incorporating

a private limited liability company.

After Singapore Company Registration - What You Need to Know

Registration documents issued

Certificate of Incorporation

The Company Registrar will send an official email notification confirming the incorporation of

the company. The email notification includes the company registration number and is treated as

the official certificate of incorporation in Singapore. A hard copy of the certification of

incorporation is no longer issued by default as it is not needed in Singapore. If however you do


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prefer a hard copy, an online request can be made to the Company Registrar after the

incorporation of the Singapore company. A fee of approximately S$50 is applicable and the hard

copy can be collected the next day from the office of the registrar.

Company Particulars Extract (Business Profile)

A business profile containing the particulars of the company can be obtained from the Company

Registrar by making a request online and paying a small application fee. Generally, the

document (a PDF file) is available for download within an hour of the request and contains the

following key details:

Company name and registration number Previous names for the company, if any Incorporation date Principal activities Paid-up capital Registered address Shareholders details Directors details Company Secretary details

The above two soft documents (i.e. email notification of incorporation and company business

profile) are sufficient in Singapore for all legal and contractual purposes including opening of

corporate bank accounts, signing office lease, subscribing to telephone/internet services, etc.

Some of the other items you will almost certainly need upon registration of your Singapore

company can be provided by the service provider you use to incorporate your company. These

items can include:

Share certificates for each of the shareholders Share register indicating shares allotted to each of the shareholders Company seal for the company A rubber stamp for the company


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If you are unable to visit Singapore, you should choose a bank that allows opening of thecorporate bank account without your visit to Singapore.

Bank account opening

After successful registration of your Singapore company, you can open a corporate bank account

in any of the major banks in Singapore such as HSBC, Standard Chartered, Citibank, DBS,

OCBC, UOB, etc. Many of the banks in Singapore these days require physical presence of the

company principals as part of the account opening procedure. You should consider thefollowing:

If you are able to visit Singapore, you have a wider choice of banks to choose from. Inthis case, you can explore the features and facilities provided by different banks and

decide on the bank that best suits your needs.

Your incorporation service provider should be able to provide the information on the choice of

banks accordingly.

For more details, refer to Opening a Corporate Bank Account in Singapore.

For more information on business licenses, refer to

Business licenses application

Depending on your company's business activities, you may need to obtain one or more business

licenses after you have incorporated your company but before you can commence your business

operations. Fortunately, very few business activities require such a license. Examples of business

activities that require a business license(s) include restaurants, educational institutes, travel

agencies, financial services, import/export of goods, etc.

Business Licenses in Singapore.

Goods and Service Tax (GST) registration

A Goods and Services Tax (GST) is an indirect tax, expressed as a percentage (currently 7%)

applied to the selling price of goods and services provided by GST registered business entities in

Singapore. GST registration is not mandatory if your annual company turnover does not exceed

S$1 million. To find out more details on whys and hows of GST registration, refer to Singapore

GST Registration Guide.

Once your Singapore company has been incorporated, the Companies Act dictates certain

ongoing compliance and filing requirements. For more details on this, see

Ongoing compliance requirements for companies registered in Singapore

Ongoing Compliance

Requirements for Singapore Companies. The advantages available to a private limited Singapore

company far outweigh the inhibitions posed by the compliance factors. Most entrepreneurs with
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long-term plans therefore prefer to register a private limited company in Singapore over other

corporate forms.


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Chapter 2Singapore tax structure


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This guide provides a detailed overview of income tax rates, tax system, and tax incentives for

Singapore companies. To calculate your estimated Singapore taxes and to compare how they

stack up against those in your home country, refer to our

Singapore Income Tax: Corporate Tax Guide

Singapore is often cited as the leading example of countries that continues to reduce corporate

income tax rates and introduce various tax incentives to attract and keep global investments.

Singapore has a single-tier territorial based flat-rate corporate income tax system. Effective tax

rates as one of the lowest in the world and the general "business friendliness" of Singapore are

the two important factors contributing to the economic growth and foreign investment into the

city-state.

online tax calculator.

Single-tier income tax system

Since January 1, 2003, Singapore has adopted a single-tier corporate income tax system, which

means there is no double-taxation for stakeholders. Tax paid by a company on its chargeable

income is the final tax and all dividends paid by a company to its shareholders are exempt from

further taxation.

There is no tax on capital gains in Singapore. Examples of capitals gains include gains on sale of

fixed assets, gains on foreign exchange on capital transactions, etc.

Income tax rates and general tax exemptions

Highest Tax Rate

Singapore's headline corporate tax rate is a flat 18% at present. However, effective 2010,

corporate income tax rate will be further reduced from 18% to 17%. In order to make Singapore

as an attractive investment destination, income tax rates in Singapore have been going down

consistently as seen below.

1997-00 2001 2002 2003-04 2005-06 2007-09 2010

26% 25.5% 24.5% 22% 20% 18% 17%

Headline income tax rate in Singapore as in many other jurisdictions does not necessarily

provide an accurate indication of effective corporate tax rate. The effective rate is normally

lower than the headline tax rate due to applicable tax exemptions and tax incentives, depreciation

rules, etc.
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0% tax on S$100K taxable income .The corporate income tax rate is 0% on the firstS$100,000 taxable income for each of the first three tax filing years for a newly

incorporated company that meets the following conditions:

General Tax Incentives

Listed below are general tax exemptions/incentives currently available to Singapore resident

companies. Once these tax exemptions are applied to the taxable income, the effective income

tax rate for small-to-midsize Singapore companies is reduced significantly.

o be incorporated in Singaporeo be tax resident in Singaporeo has no more than 20 shareholders of which at least one is an individual

shareholder holding at least 10% of shares.

8.5% tax on taxable income of upto S$300KAll Singapore resident companies are eligible for partial tax exemption which effectively

translates to about 8.5% tax rate on taxable income of upto S$300,000 per annum. The

taxable income above S$300,000 will be charged at the normal headline corporate tax

rate of 17%.

Effective Corporate Tax Rate

The above general tax incentives mean very attractive tax rates for small-to-midsize companies.

For example, a typical Singapore resident company with S$2,000,000 annual taxable income will

be taxed as below:

First Three Years of Income Tax Filings

Taxable Income (S$) Tax Rate

0 - 100,000 0%

100,001 - 300,000 8.5%

300,001 - 2,000,000 17%

After First Three Years of Income Tax Filings

Taxable Income (S$) Tax Rate

0 - 300,000 8.5%300,001 - 2,000,000 17%

Income tax filing due date

Income tax filing due date for Singapore companies starting year 2009 is October 31.


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The company has to file a complete set of returns including Form C, audited/unaudited accounts,

and tax computation. The Form C is a declaration form for a company to declare its income

whereas tax computation is a statement showing the adjustments to the net profit/loss as per the

accounts of a company to arrive at the amount of income that is chargeable to tax. For more

details, see Annual Filing Requirements for Singapore Companies guide.

Income tax basis period

In Singapore, corporate income is assessed on a preceding year basis. This means that the basis

period for any Year of Assessment (YA) generally refers to the financial year ending (FYE) in

the year preceding the YA. For example, in year 2008 you will be filing corporate tax return for

your company's financial year that ended anytime between January 1, 2007 to December 31,

2007. Your company's accounts are prepared up to the FYE each year.

Income tax audit exemption

In order to ease the burden on smaller businesses, a) exempt private companies (i.e no corporate

shareholders and individual shareholders < 20) with annual revenue of less than S$5 million; and

b) dormant companies (i.e. no accounting transactions during the year) are exempted from

auditing their accounts and can file unaudited accounts. Where the financial year is less than 12

months, the said limit of S$5 million must be pro-rated.

An Exempt Private Company (EPC) is defined under Section 4(1) of the Companies Act as a

company which has no more than 20 shareholders and its shares are held by individuals only. It's

important to note that all companies (regardless of exempt or not) are required to submit a Form

C, tax computation and the audited/unaudited accounts annually.

For more details on withholding taxes, see

Withholding tax

Singapore has implemented a withholding tax law (on certain types of income) to ensure the

collection of tax payable to non-residents on income generated in Singapore. The tax

withholding does not apply to Singapore resident companies or individuals. Under the law, when

a payment of a specified nature is made to a non-resident company or individual, a percentage of

the payment has to be withheld and paid to Income Tax Authorities. The amount withheld is

called the withholding tax.

Singapore Withholding Tax guide.

Industry specific and special purpose tax incentives

In additional to the general tax exemptions/incentives listed above, there are certain industry

specific and special purpose income tax incentives and concessionary tax rates offered under the

Singapore Income Tax Act. For overview of these additional tax incentives, refer to Specialised

Tax Incentives in Singapore.
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A Singapore resident company is eligible for income tax exemption scheme available fornew start-up companies.

Tax residence of company

A company is considered as resident in Singapore if the control and management of the business

is exercised in Singapore. Although the term "control and management" is not defined explicitly

by authorities, a generally accepted consensus is that it refers to the policy level decision making

at the level of Board of Directors and not the day-to-day decision making and operations.

In general, a company is considered non-resident in Singapore if the directors manage and

control the business and hold board meetings from outside Singapore. This is true even if, for

example, the lower level operations are taking place in Singapore. A company's residence may

change from one year of assessment to the next depending on the circumstances. A Singapore

branch of a foreign company is generally not treated as a Singapore tax resident since the control

and management is vested with an overseas parent company.

The basis of taxation for a resident company and non-resident company is generally the same

with the exception of certain benefits that are available to resident companies. These include:

A Singapore resident company can enjoy income tax exemption on foreign-sourceddividends, foreign branch profits, and foreign-sourced service income under section 13(8)

of the Income Tax Act.

A Singapore resident company is entitled to benefits conferred under the Avoidance ofDouble Taxation Agreements (DTA) that Singapore has concluded with treaty countries.

For more details, see

Singapore tax treaties

A tax treaty between two countries is generally an agreement that specifies how the income

earned will be taxed by the authorities of each country when a company is involved in doing

business in both countries. The main benefit and objective of a income tax treaty is to help

businesses avoid double taxation of their income.

Singapore has concluded tax treaties with more 50 countries and the list continues to grow. The

treaties reflect Singapore's continual efforts to help businesses in relieving double taxation and to

encourage and facilitate the trade and investment opportunities across-borders.

Starting 2008, Singapore has gone a step further in providing unilateral tax credits to Singapore

companies. According to the new policy, all Singapore companies that earned income from

countries that dont have double tax agreement with Singapore, will be allowed a tax credit on

their foreign-sourced income from those countries.

Singapore Tax Treaties and Double Tax Agreements guide.
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Part A is the income that has a source in Singapore. Part B is the income with a source outside

Singapore and received in Singapore. For Part B however, there are certain qualified exemptions

commonly known as Exemptions On Foreign Sourced Income. For more details, see

Net income vs taxable income

A company's income means gains or profits from any trade or business income from investment

such as dividends, interest and rental royalties, premiums and any other profits from property

other gains of an income nature.

As per Income Tax Act of Singapore, corporate tax is imposed on the income that is A) accruing

in or derived from Singapore; B) received in Singapore from outside Singapore.

Singapore

Taxation of Foreign Sourced Income guide.

A company's net profit/loss alone does not provide an accurate picture of the taxable income. For

instance, some of the expenses incurred by your company may not be deductible for tax purposes

or some of the income received may not be taxable or it may be taxed separately as a non-trade

source income. For more details, see Calculating Taxable Income for Singapore Companies.

Certain company income may be exempted from tax under the provisions of the Singapore

Income Tax Act. Examples include general tax exemptions available to all companies, exempt

income for certain industries such as shipping income derived by a shipping company, foreign-

sourced dividends, branch profits & service income received by a resident company that satisfies

the qualifying conditions, exemptions on qualified foreign sourced income, etc.

Tax treatment of losses

In general, a company can deduct losses against the income for taxation purposes in Singapore.

The loss can be carried forward indefinitely (subject to certain conditions), however, it must be

deducted in the first available year where there is a statutory income. The deduction of the loss

follows the "proceeding year" basis. It's important to note that the losses can be utilized only as

long as there is no substantial change in the shareholding.

Tax treaties enable you to access relief from double taxation, either by way of tax credit, tax

exemption or a reduced tax rate. These reduced rates and exemptions vary among countries and

specific items of income. Treaty provisions generally are reciprocal (apply to both treaty

Singapore DTA Guide

The development of international trade and multinational corporations has increased the issue of

double taxation. As a company or individual looking beyond your own country for business

opportunities and investments you would naturally be concerned with the problem of doubletaxation. Consequently you would seek to structure your operations at a minimum tax cost. This

is where Singapore's DTAs or tax treaties come into play.
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countries). If there is no treaty between your country and Singapore, you may be able to take

advantage of unilateral tax credit. Singapore currently has more than 50 comprehensive DTAs to

take advantage of and provides specific guidelines for double taxation relief on various types of

income.

This article focuses on Singapore's double tax agreements. To get an overall understanding ofcorporate taxes in Singapore, see Singapore Income Tax for Companies guide.

What is Double Taxation?

Double taxation arises when two or more countries impose taxes on the same taxpayer in respect

of the same taxable income or capital. In other words, the same income is being taxed twice - the

country of source where the income arises and the country of residence where the income is

received. To relieve taxpayers from the burden of double taxation, countries provide various

types of reliefs either under their domestic tax laws or under the tax treaties they have entered

into with other countries.

What is a Double Tax Agreement?

A Double Tax Agreement (DTA) is a bilateral agreement between two countries to avoid double

taxation, resulting from the application of their respective domestic tax laws.

1. The main objective of a DTA is to provide certainty regarding when and how tax is to beimposed in the country where the income-producing activity is conducted or payment is

made. As a result is defines the jurisdictional authority on cross-border transactions.

Benefits of DTAs

2. It clearly defines the taxing right of each country.3. It seeks to prevent international tax evasion by sanctioning the exchange of information

between the tax authorities of the contracting countries.

4. It allows you to claim for relief for taxes paid overseas.

Only Singapore tax residents and tax residents of the treaty country can enjoy the benefits of a

DTA. If your company is resident in Singapore (i.e. the control and management of its businessare exercised in Singapore) and you earn foreign income from a treaty country, you are entitled

to claim for relief under the relevant tax treaty by submitting a Certificate of Residence to the

foreign country. This is proof of your company being a Singapore tax resident. If on the other

hand, you are a tax resident of a treaty country you will have to submit to the Inland Revenue

Authority of Singapore, a completed Certificate of Residence from Non-Residents (Claim for

Who benefits from DTAs?
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relief from Singapore Income Tax Under Avoidance of Double Taxation Agreement) that is duly

certified by the tax authority of the treaty country.

1. Scope of the DTA is limited to tax residents of Singapore and the treaty country. DTAsare not applicable to non-residents of either country.

Contents of DTAs concluded by Singapore

Although each DTA concluded by Singapore has specific terms and may differ from one countryto another, there are certain key general principles of a typical DTA, as outlined below:

2. Taxes covered by the DTA is limited to taxes on income and excludes customs andexcise duties.

3. Defining the concept of Permanent Establishment (PE), as a fixed place of businessthrough which the business of an enterprise is wholly or partly carried on, and normally

includes a place of management, a branch, an office, a factory, a workshop and a place ofextraction of natural resources, etc. This definition is important as business profits

attributable to that PE is taxable in that country.

4. Income from immovable property, such as rental income from real estate, is usually taxedboth in the country of source (where the property is situated) and country of residence of

the recipient. According to Singapore DTAs, the country of residence will have to allow a

credit for the tax paid in the country of source.

5. Tax Credit. Singapore (as the Country of Residence) will give a tax credit in respect ofthe foreign income based on the lower of Singapore tax payable or foreign tax paid. In

addition, foreign-sourced income is also tax exempt in Singapore subject to two

conditions - that the year the income is received in Singapore, the headline tax rate (i.e.

highest corporate tax rate) of the foreign jurisdiction from which the income is received is

at least 15% and that the foreign income has been subjected to tax in the foreign country.

6. Airline or shipping profits derived by an enterprise of one country from the other countryare entitled to either full or partial exemption. Where full exemption is provided for, this

means that the air transport or shipping income will be taxed in the enterprises Country

of Residence only.

7. Dividend income may be taxed in the recipient's country of residence and that the countryof source (i.e. the country in which the company paying the dividend is resident) has the

right to tax the dividend income. Normally the country of source would grant full or

partial tax exemption or impose a reduced dividend withholding tax rate. Since Singapore

follows a one-tier corporate system it does not levy dividends withholding tax. Whether

they are taxable in the treaty country would depend on the domestic tax laws of that

country and what the treaty specifies.


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8. Interest will be exempted or taxed at a reduced rate in the country in which the interestincome arises (source country). In the Belgian and Netherlands tax treaties, residents of

these countries deriving interest from Singapore are taxable at the rate of 15% and 10%

respectively. In the Japanese treaty, if the interest arises from a loan that is made to an

approved industrial undertaking, such interest is exempt from Singapore tax, otherwise a

tax of 15% is chargeable. The treaty with Malaysia does not provide for any reduction of

tax on interest.

9. Royalty income tax treatment varies from complete to partial exemption.10.Professional services income is normally taxed in the country of residence of the

individual performing the services. When the individual has a fixed base in Singapore

(office or clinic) his income from the professional services will be taxed in the same

manner as his business profits. Professional services cover physicians, lawyers,

engineers, architects, dentists, accountants, etc. Some tax treaties (e.g. with Australia,

Netherlands, Pakistan) provide tax exemption if the individual is present in Singapore fornot more than 183 days in a tax year and where the services are performed for a resident

of the other contracting country.

11.Income from employment will be taxed in Singapore if the employment is exercised inSingapore unless: a. the employee is not present in Singapore for more than 183 days in a

tax year b. His employer is a resident of the contracting country c. His remuneration is

not borne by a permanent establishment in Singapore of an enterprise of a contracting

country. Singapore's tax treaty with Malaysia, UK, Denmark, Norway, Federal Republic

of Germany and Sweden requires an additional condition to be fulfilled - the employee's

income must be subject to tax in the other contracting country.

12.The source of directors' fees is in the country in which the company paying the fee isresident. The full domestic tax rate would apply as there is no exemption or reduced tax

rate.

13.Government payments - Any salary, wage, pension, or similar rewards for personalservices paid by the government of a contracting country to persons performing services

in Singapore on behalf of that government are exempt from tax in Singapore and will

only be taxed in the contracting country.

14.Remuneration paid to visiting professors or teachers, by a contracting country, forteaching at a Singapore based educational institute is exempt from tax in Singapore.

15.Self-employed persons are liable to Singapore income tax on the full amount of theirincome which is earned in Singapore, net of any tax-deductible expenses which they

might have incurred in order to earn that income.


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16.The right to tax gains arising from the sale of immovable property and gains from sale ofshares varies from DTAs signed with different countries.

Methods of relieving double taxation in Singapore

The methods of relieving double taxation are given either under a country's domestic tax laws orunder the tax treaty. The available methods in Singapore are as follows:

Tax Credit Relief

A tax credit will be given for the foreign tax suffered by a tax payer against his domestic tax

imposed on the same income. The amount of tax credit relief is normally restricted to the lower

of the paid/payable in the foreign and home country. This is known as the ordinary credit method

vis-a-vis the full credit method, where the tax paid in the country of source is allowed as a credit

in full.

Tax credit relief is commonly referred to as Double Tax Relief in Singapore. The claim for DTRshould be made while filing annual income tax returns (Form C) and should be shown in the

company's tax computation. Documentary proof (e.g. withholding tax receipts, letter from the

foreign tax authority, or dividend vouchers) to show that the remitted income has been subjected

to tax in the treaty country is required, before DTR claims can be considered.

The highest corporate tax rate (headline tax rate) of the foreign country from which theincome was received is at least 15% and

Tax exemption

Double taxation can be avoided when foreign income is exempt from domestic tax. The

exemption may be given on the entire or part of the foreign income.

Tax exemption for foreign-sourced dividends, branch profits, and service income Sec 13(8)

A Singapore tax resident company can enjoy tax exemption on its foreign-sourced dividends,

foreign branch profits, and foreign-sourced service income that is remitted into Singapore if the

following conditions are met:

The foreign income had been subjected to tax in the foreign country from which theywere received. The rate at which the foreign income was taxed can be different from the

headline tax rate.

Furthermore, tax exemption will be granted to all foreign sourced income earned/accrued outside

Singapore on or before 21 Jan 2009 to resident non-individuals and resident partners of

partnerships in Singapore, and received in Singapore during the period from 22 Jan 2009 to 21

Jan 2010.


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To enjoy the tax exemption on the specified foreign income, you need not submit documents

(such as dividend vouchers, notices of assessment issued by the relevant foreign jurisdiction etc)

with your income tax returns to substantiate that their specified foreign income qualifies for the

exemption. Instead you only need to declare in the appropriate section of your income tax returns

that your specified foreign income qualifies for the tax exemption and furnish the following

particulars:

1. Nature and amount of income (i.e. foreign-sourced dividend, foreign branch profits orforeign-sourced service income)

2. Country from which the income is received3. Headline tax rate of the country from which the income is received and4. Amount of foreign tax paid/payable in the country from which the income is received.

Tax exemptions for individuals Sec 13(7A)

For tax resident individuals in Singapore, all foreign income received in Singapore will be

exempt from tax if the Comptroller is satisfied that the tax exemption is beneficial to the

individuals.

Reduced tax rate

Under this form of relief, income is taxed at a lower rate and is applicable to the following

classes of income: interest, dividends, royalties and profits from international shipping and air

transport.

Relief by deduction

In this case, domestic tax is applied on the foreign income after deducting foreign tax suffered.

Singapore does not allow a deduction of foreign income tax. However a deduction is given

indirectly as under the remittance basis, Singapore would tax the amount of foreign income

received (i.e. net of foreign tax) in Singapore.

The tax sparing credit provision is usually found in DTAs between a developing country which

offers tax incentives to attract foreign investment and a developed country which is capital

Tax sparing credit

Under a DTA, tax credit is usually available in the country of residence only if the income has

been taxed in the country of source. Tax sparing credit is a special form of credit whereby thecountry of residence agrees to give a credit of the tax which would have been paid in the country

of source but was not, i.e., "spared", under special laws in that country to promote economic

development.


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exporting. The credit is given by the capital-exporting country under its laws to promote

investments.

Tax relief example under different methods

1. Income derived from any professional, consultancy and other services rendered in anyterritory outside Singapore.

Unilateral tax credit

If you are a Singapore resident receiving the following foreign income from countries which

Singapore has yet to conclude an Avoidance of Double Taxation Agreement (DTA), you can

now get a unilateral tax credit for the foreign taxes paid on such income under Section 50A of

the Singapore Income Tax Act.

2. Dividends or3. Profits derived by an overseas branch of a Singapore resident company.


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Unilateral tax credit under Sec 50A would also apply to foreign sourced royalty from non-treaty

countries, provided the royalty is not

1. borne directly or indirectly by a person resident in Singapore or a permanentestablishment in Singapore or

2. deductible against any Singapore sourced income

1. Comprehensive Avoidance of Double Taxation Agreements

Singapore's tax treaty network

All the Double Taxation Agreements concluded by Singapore since 1965 to date are categorized

as follows:

- These agreements

generally cover all types of income.

2. Limited Treaties - These agreements cover only income from shipping and/or airtransport.

3. Treaties which are Signed but not Ratified - These are either comprehensive agreementsor limited treaties which are not ratified and therefore do not have the force of law.

Company Setup Requirements: Singapore vs Indonesia

Company incorporation requirements and procedures vary across different countries. While

certain jurisdictions have streamlined the process to facilitate company set up by foreign

entrepreneurs, certain other jurisdictions have less desirable administration systems that deter

potential foreign investments. This article throws light on the company formation requirementsin Singapore versus Indonesia including minimum statutory requirements, foreign ownership

policy, incorporation procedure and time-line, compliances etc.

a limited liability company which is 100% foreign owned or

Foreign Ownership

Singapore does not impose any restrictions on foreigners who wish to do business in the country.

It allows 100% foreign ownership (i.e. shareholding) of a Singapore private limited company. In

other words, foreign entrepreneurs do not need a local partner to set up a private limited

company in Singapore.

Indonesia's foreign ownership policy significantly differs from that of Singapore's. Foreignentrepreneurs can set up a foreign direct investment company in Indonesia (commonly known as

Penanaman Modal Asing, or PMA) either by setting up:

a limited liability company through a joint venture with Indonesian partners
http://www.iras.gov.sg/irasHome/page.aspx?id=812#comprehensivehttp://www.iras.gov.sg/irasHome/page.aspx?id=812#limitedtreatieshttp://www.iras.gov.sg/irasHome/page.aspx?id=812#notratifiedhttp://www.iras.gov.sg/irasHome/page.aspx?id=812#notratifiedhttp://www.iras.gov.sg/irasHome/page.aspx?id=812#limitedtreatieshttp://www.iras.gov.sg/irasHome/page.aspx?id=812#comprehensive


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There is a disinvestment requirement which is imposed on a 100% foreign owned company.

Within 15 years from the commencement of commercial operations, the foreign shareholder is

required to divest at least 5% of the shares to an Indonesian citizen or legal entity.

In the case of a joint venture, the Indonesian partner is required to hold at least 5% of the shares

while the foreign owner can have 95% shareholding in the company.

Additionally, the Indonesian government regulates the fields of business activity that are open to

foreign investment. At present there is a list of business fields:

closed to foreign investment open to foreign investment with certain conditions open to foreign investment only by way of a joint venture open to 100% foreign investment

Minimum Statutory Requirements

In keeping with its business friendly image, Singapore mandates minimal and easy to comply

with statutory requirements to set up a private limited company. The basic requirements include:

a local registered address; at least 1 local resident director (a Singapore Citizen, a Singapore PR,

or a foreigner holding a valid work visa or Dependent Pass); a local resident and qualified

company secretary (must be a natural person); a minimum of 1 and maximum of 50 shareholders

(natural persons or corporates); and a minimum paid up capital of SGD 1.00 (no authorized

capital required).

Foreigners who wish to incorporate a company in Indonesia must comply with the following

requirements: a local registered address; at least 1 director (need not be a local resident);

minimum of 2 and maximum of 50 shareholders (natural persons or corporates) and a

commissioner. Although there is no mandatory minimum share capital requirement, authorities

normally approve companies with a minimum share capital of USD 100,000 - USD 250,000.

Singapore is one of the easiest places in the world to set up a business.

Incorporation Procedure

Company registration in

Singapore is quick and efficient and can be completed within 1 day via electronic means. There

are only two major steps involved in company formation - name approval and filing

incorporation documents. Name approval is secured by filing an online application with the

Company Registrar. Generally, the name approval (or rejection) notification will be known

within one hour. Once the name is approved, incorporation documents must be filed with the

Company Registrar. If all documents are found to be in order, the Company Registrar will send

an official email notification (including the company registration number) confirming the
http://www.bkpm.go.id/file_uploaded/PP_77_2007.pdfhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.guidemesingapore.com/company-setup/c312-singapore-company-registration-details.htmhttp://www.bkpm.go.id/file_uploaded/PP_77_2007.pdf


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incorporation of the company, just within a few hours of documents submission. The email

notification is treated as the official certificate of incorporation in Singapore.

After incorporation, the company must register for Goods and Services Tax, if applicable, (an

indirect tax of 7% applied to the selling price of goods and services) with the Inland Revenue

Authority of Singapore. Tax registration can be done within 1 day. It must also obtain thenecessary business licenses or permits, if applicable. Business licenses can be procured within 1

week. The final step is to open a corporate bank account.

By contrast, company incorporation in Indonesia is tedious and time consuming, taking up to 12

weeks to complete all formalities. The incorporation process involves the following steps:

1. Submit a company incorporation application along with supporting documents to theCapital Investment Co-ordinating Board (BKPM). Application processing takes around 5

weeks, upon which the BKPM will issue an in-principle business license valid for 3

years. During this period the foreign entrepreneur must make the necessary investmentand begin commercial operations in Indonesia.

2. Execute a Deed of Establishment which contains the company's Articles of Associationbefore a notary. The company is not a limited liability company at this stage.

3. Obtain a Letter of Domicile from the landlord of the office premises and the regionalgovernment office, which states the address of the company.

4. Register with the tax department for VAT (an indirect tax of 10% applied to the sellingprice of goods and services) and obtain a tax registration number.

5. Open a corporate bank account.6. Submit the executed deed, letter of domicile, tax registration number and bank statement

to the Ministry of Justice and receive approval within 2-3 months. Upon approval the

company is considered a limited liability company.

7. Register the approved deed with the Department of Trade.8. Obtain other relevant business licenses and permits, if applicable.9. Obtain a Permanent Business License (IUT) valid for 30 years from the BKPM.

Incorporation Time-line

Company incorporation in Singapore can be completed in a record time of less than 24 hours,

with minimal formalities. In Indonesia, it can take anywhere between 3-6 months to incorporate

a company.

Annual Filing Requirements


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In Singapore, annual returns along with audited annual accounts must be filed with Companies

Registrar and tax returns along with audited accounts must be filed with the Singapore tax

department each year. However, dormant companies (i.e no accounting transactions for the

financial year) and exempt private companies (not more than 20 shareholders and shares are not

held by another company) with an annual turnover of less than SGD 5 million are exempt from

audit requirements for both annual returns and tax returns. These companies can file unaudited

accounts.

In Indonesia, companies must submit annual returns along with audited annual accounts to the

Companies Registry. Tax returns along with audited accounts must be filed with the Indonesian

tax authority each year.

The Singapore government has put in place an open immigration policy to facilitate the

relocation of foreigners who wish to set up a business in the country. Foreign entrepreneurs whowish to re-locate to Singapore to run their company can easily do so under the

Company Formation by Foreigners

Employment Pass

Scheme or the Entrepreneur Pass Scheme. Most entrepreneurs find it relatively easy to qualify

under either of these two schemes. However, relocation to Indonesia is not so simple and

straightforward.

A foreign entrepreneur who wishes to relocate to Indonesia to run his company must first submit

a Foreign Manpower Utilization Plan to the Indonesian authorities. The Plan will outline his

position in the company, the duration of his term, details of other foreign employees etc. It is on

the basis of the Plan that work permits are issued. Once the plan is approved, the entrepreneur

must obtain a Visa for Limited Stay from the Indonesian embassy or Consulate in his country ofresidence. Upon arrival at Indonesia, he must apply for the Limited Stay Permit and a Work

Permit in order to stay in Indonesia to run his company.

On a Final Note

Setting up a company in Singapore is significantly easier than incorporating a company in

Indonesia. Unlike Indonesia, Singapore does not impose any restrictions on foreign ownership

nor does it limit the business activities that are open to foreign investment. Most entrepreneurs

prefer Singapore as an investment destination, as company incorporation can be completed in 1

day's time with minimal formalities. Moreover, it is easy to relocate to the country to operate the

business. Given Indonesia's 3-6 month time line for company incorporation, which is hampered

by bureaucratic delays and the complicated visa approval process, investors rank Indonesia as an

undesirable offshore business destination.
http://www.guidemesingapore.com/work-permit/c330-employment-pass-visa-work-permit-singapore.htmhttp://www.guidemesingapore.com/work-permit/c330-employment-pass-visa-work-permit-singapore.htmhttp://www.guidemesingapore.com/work-permit/c329-singapore-business-work-visa-entrepass.htmhttp://www.guidemesingapore.com/work-permit/c329-singapore-business-work-visa-entrepass.htmhttp://www.guidemesingapore.com/work-permit/c330-employment-pass-visa-work-permit-singapore.htm


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Chapter 3Indonesian business and its incorporation procedure


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Ever since Indonesia's independence, foreign companies have made major investments in

Indonesia to develop its resources, build infrastructure, establish manufacturing facilities for

export and/or provide products and services for the domestic market. The intricacies of setting up

a company and making an investment in Indonesia are many.

Setting up Business Activities and a Company in Indonesia

To establish a business in Indonesia, if you do not require a local legal entity for the investment

proposed, you could choose to appoint an Agent or Distributor, or set up a Representative Office.

Many foreign investors at the early stage of entering the Indonesia market choose to set up an

Agency Agreement or Representative Office, then later after the business starts to grow they will

apply for a Foreign Direct Investment Company (FDI) status.

This is referred to most commonly in Indonesia by its Indonesian acronym PMA, or Penanaman

Modal Asing.

Representative Office from Ministry of Industry & Trade - for bilateral trade

Representative Office

A Representative Office can be established depending upon the line of business and the

necessary licenses issued by the related government department. The limitation of a

Representative Office is that they are not allowed to conduct direct sales and cannot issue Bills

of Lading.

Representative offices are set up primarily for marketing, market research, or as buying or selling

agents. The related government ministries are:

Representative Office from Ministry of Public Work - for consultant or contractor Representative Office from Ministry of Mining - for mining activities Representative Office from Ministry of Finance - for banking Representative Office from Investment Board (BKPM) - regional representative

To establish a Representative Office with permission from the Ministry of Industry and Trade,

the company's head office needs to issue three letters:

Letter of Intent - stating the intention of the company to establish a representative office Letter of Appointment - stating the appointment of the chief representative Letter of Statement - stating that the Chief Representative will follow Indonesian

regulations


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The three letters must be stamped by a notary public and approved by the Indonesian Embassy in

the home country of the firm. Upon approval, the Indonesian Embassy will issue a Letter of

Notification (Surat Keterangan). Upon completion of the four letters the process can continue to

the related government ministry in Jakarta, to incorporate a fixed license for 2 years.

Other ministries require different types of letters.

Limited Liability Co or Perusahaan Terbatas (PT)

Foreign Direct Investment, most often referred to by its Indonesian abbreviation - PMA, is

governed primarily by the Foreign Capital Investment Law No. 1 of 1967, amended by Law No.

11 of 1970. As a legal basis, the law is fairly accommodative to various deregulatory policies and

measures to date, and those that will be taken by the government in the foreseeable future.

In addition to Investment Law No. 1/1967, PMA companies as well as other companies, in their

business operations are still subject to sector/industrial policies as required by corresponding

ministries.

Allows 100% FDI investment in selected areas of business

Incorporation of PMA Company

The Investment Coordinating Board (BKPM), the government body which processes and handles

FDI companies, issued an important deregulation package on PMA in May 1994 referred to as

PP-20/1994. It was seen as a very significant step toward a much more conducive and attractive

investment environment in Indonesia. The regulation:

Limits foreign direct investment to 95%, with a minimum of 5% ownership by anIndonesian

Allows FDI investment with certain conditions Stipulates the sectors which are closed to FDI investment

You can obtain a copy of the FDI application in English from Indonesian embassies overseas or

from the Investment Coordinating Board office either from the head office in Jakarta or from

regional offices in the provinces.

For those companies choosing to make a 100% foreign investment, there is a requirement that 15years from the commencement of commercial operations, the 100% foreign shareholder must

sell at least 5% of the firm to an Indonesian entity. A company which is initially 95% foreign

owned is not subject to any divestment requirement.

The amount of capital to be invested in a foreign-owned company is decided by the investing

parties themselves, and the BKPM approval is based on the economics and scale of the project.


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Foreign investment companies are basically free to choose where in Indonesia they will set up

operations, with the proviso that factories must be in areas zoned for industry or in an industrial

estate.

The life of foreign investment companies has been extended by allowing the renewal of the fixed

operating license (IUT) for an additional 30 years. In other words, the initial licenses are validfor 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.

a. Establish Articles of Association with a Public Notary detailing proof of capitalinvestment, and send it to the Ministry of Justice for approval and issuance of State

Gazette

The process of incorporation of a new foreign direct investment company:

Initial License (valid for 3 years)

Step 1. Prepare and send the application with required documentation, compiled according to the

investment plan. Set up a joint venture agreement if you are making the investment with

Indonesian partners.

Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.

Step 3. Incorporation of SPPP BKPM

b. Registration of company address with local council (domicile)c. IRD registration (NPWP + PKP)d. Registration with the Department of Industry and Trade (TDP)

Step 4. Key expatriate positions (work permits)

Fixed Operating License (30 years)

Step 5. Prepare and send the 6-month report (LKPM) to the provincial BKPM office as well as

UUG (HO) nuisance act to the regional office of BKPM

Step 6. Incorporate facilities - Master list/APIT or property ownership

Step 7. Provincial approval for Fixed Licenses (BAP)

Step 8. Fixed License (IUT) for 30 years is issued

A Limited Liability company is established either under foreign shareholders or through a joint

venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by

the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability


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company, they must comply with Indonesian law and are considered an Indonesian company and

the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.

To get license of Change of Capital and Change of Owner the applications should be submitted

to BKPM. According to BKPM, there's no charge to arrange licenses.

Offshore Incorporation

In some situations, it may be to an investor's advantage to incorporate their firm offshore, while

operations are carried out in Indonesia. The advantages and disadvantages of offshore usually

focus on the facilities offered by tax havens in nations like Mauritius and the Cayman Islands.

Your management consultant can assist you in making this important decision.

Taxation and Labor Law

Another important matter is the Taxation and Labor Law. It is compulsory to report taxes on a

monthly basis and follow Indonesian labor law.

As you can see from this very brief introduction, the process is a complicated and lengthy one

and can be a virtual mine field to those who are unfamiliar with dealing with Indonesian

ministries. It is essential to acquire the advisory services of a professional investment consultant

which specializes in assisting foreign companies who want to establish businesses in Indonesia.

Visas for Foreign Directors/employees

Applications for KITAS and KITAP, and other permits, should be submitted to:

Directorate General of ImmigrationJl. HR Rasuna Said Kav. 6-7

Jakarta Selatan, Indonesia

Phone : (62-21) 522-030

Indonesian tax structure

Taxable Income Rp. Rate Tax Rp.

On first 25,000,000 10 % 2,500,000

On next 25,000,000 15 % 3,750,000

Over 50,000,000 30 % ---

PERSONAL TAXATION


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MAIN PERSONAL RELIEFS

Description IDR

Taxpayer 1,728,000

Spouse 864,000

Each dependent (max of 3) 864,000

Occupation expenses (5% of gross income, 54,000/month) 648,000

Contribution to "approved pension fund Full Amount

Employees' contribution to Jamsostek for old age savings (2% of grossincome)

Full Amount

TAX RESIDENCE

An individual is regarded as tax resident if he :

- is domiciled in Indonesia: or- is present in Indonesia for more than 183 days within any 12 month period; or

- is present in Indonesia within a fiscal year and intends to reside in Indonesia.

NON-RESIDENTS

Non-resident individuals are subject to withholding tax (Article 26) at 20% (subject to treaty

provisions) on Indonesian source income. This includes, amongst others, the estimated net

income of the sale of property in Indonesia (other than securities traded in stock exchanges, and

land and buildings). Sales transactions of shares in stock exchanges are subject to withholding

tax at 0.1% of the transaction value.

COLLECTION OF TAX

Employers are required to withhold tax monthly (Article 21) from salaries paid to employees,

based on their income and personal reliefs entitlement. Tax is also withheld from pensions and


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6.0% for a married employee (max. Rp 60,000 per month) and 3.0% for an unmarried employee

(max. Rp 30,000 per month).

CORPORATE TAXATION

TAX RESIDENCE

A company is treated as "tax resident" in Indonesia if it is incorporated or domiciled in

Indonesia. Although a foreign company does not lose its status as a non-resident taxpayer by

operating a permanent establishment (PE) in Indonesia, the PE itself must assume the same tax

obligations as a resident taxpayer.

COLLECTION OF TAX

All "tax resident" companies, businesses and permanent establishments, are required to pay tax

by monthly installments. Tax on interest, royalties, rental, dividends, insurance premiums paid to

an offshore insurance company, gains on the sale of property in Indonesia, service fees including

fees to contractor, are collected by means of withholding tax. The withholding tax is a payment

on account of the recipient's income tax liability if the recipient is a tax resident in Indonesia, and

a final tax if the recipient is a non-resident.

At year end, when submitting the tax return, taxpayers will have to pay, based on the self-

assessment system, the amount of tax calculated in the annual tax return to the extent this amount

exceeds the tax already paid during the year and or deduction on withholding by third parties

BUSINESS PROFITS

Business profits are computed on the basis of normal accounting principles as modified by

certain tax adjustments.

Generally, a deduction is allowed for all outgoings and expenses incurred for obtaining,

collecting and maintaining taxable business profits.

DEDUCTIONS DISALLOWED

These include : Benefits in kind (e.g. free housing, company provided car) except for 'remote'areas.

Private expenses.

Non-business gifts and aid.


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Provisions/reserves - except for certain provisions for banks, leasing and insurance companies

and provisions for reclamation costs for mining companies.

Income tax payments, including penalties.

Distribution of profits.

Employers contribution to unapproved pension fund, unless such contribution is treated as

taxable income of the employee.

LOSSES

Losses may be carried forward for a maximum of five years. However, for a limited category of

businesses and investments in certain regions, loss carry forward is extended to ten years. A

carry back of losses is not possible.

PROFIT DISTRIBUTION

Withholding tax is deducted from dividends as follows :

i).Resident Recipients

Individuals: 15% withholding tax, which is considered an advance payment of the income tax of

the recipient.

Companies and Organizations: Dividends received from Indonesian companies by limited

liability companies (PT) incorporated in Indonesia, cooperatives, foundations, state owned orregional owned companies (BUMN/BUMD) are exempt from income tax.

ii). Non-Resident-Recipients

20% (lower for treaty countries) withholding, which is the final tax liability of the non-resident

recipient.

DEEMED PROFIT MARGINS AND DEEMED SALARIES

Certain businesses have deemed profit margins for tax purposes, as follows:

On gross

Foreign shipping and airline operations 6%

Foreign oil and gas drilling services operations 15%

Certain Ministry of Trade Representative Office 1% on export value


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Article 23 withholding and Article 25 monthly installment payments may be reduced accordingly

(e.g. a rate of 2.64% applies to most international shipping charter payments).

Employees in the oil and gas drilling sector are taxed on deemed salaries according to their job

title as follows :

US$ per month

General Managers .......................................................... 11,275

Managers....................................................................... 9,350

Supervisors and tool pushers .......................................... 5,830

Assistant tool pushers..................................................... 4,510

Other crew ..................................................................... 3,245

SPECIAL INDUSTRIES AND ACTIVITIES

As with all tax systems, there are a whole range of exceptions to "normal" treatment. In

Indonesia such exceptions include, for example, the tax treatment of Production Sharing

Contracts, Gold and Coal Mining Contracts of Work, and Foreign Aid Projects. Partnerships,

sole proprietorships and other business forms are subject to special tax treatment, but are

basically within the general tax framework outlined in this booklet. Investment funds and venture

capital companies enjoy certain exemptions from income tax.

INCENTIVES

Stock Exchanges

Income Tax on gains of Indonesian listed securities is limited to 0. 1 % of transaction value.

For founder shareholder this is 5.1%.

Bank Interest

Income Tax on interest from Indonesian banks is fixed at a final 15% for both companies and

individuals.

Merger

Tax free mergers are permissible for banks and companies going public.

Land & Buildings


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A final 5% income tax on sales value applies to individual

Government structure

There are 33 provinces in Indonesia each with its own governor. Provinces (which are further

subdivided into regencies) have their own local governments and legislative bodies. Sinceregional autonomy laws were passed in 1999, provinces and regencies have extensive power

over their own affairs, however foreign policy, defense (including armed forces and national

police), legal system, and monetary policy, are still under control of national government. Since

2005, heads of local government (governors, regents, and mayors) have been directly elected by

popular election. There are 349 regencies in Indonesia.

A Sub-district is an area within a regency. The head of sub-district is called "Camat"'. A Camat

is a civil servant, responsible to the regent.

Chief of village, is called "Kepala Desa" and has authority over the local people in accordance

with acknowledged local traditions of the area and is elected by popular vote.

IndoAdvisors has extensive experience in dealing with regional and local government leaders

and we have established strong working relationships with local leaders in connection with

projects we have worked on in the past. A significant amount of local autonomy is vested in local

government in these areas and their support is essential to the success of any project located

within their area of influence.

This personal liability is extinguished once the MOJ approval is obtained and a general meeting

of shareholders is held to approve, ratify and adopt all prior actions and liabilities undertaken in

the company's name. Directors also have personal liability during this "company in formation"

period. Their personal liability remains longer, namely until the new company is registered in the

INCORPORATION OF COMPANY IN INDONESIA

The Incorporation of a limited liability company is governed by the Company Law No. 1 of

1995 (the "Company Law").

Under the Company Law shareholders of an Indonesian company have limited liability in

respect of the liabilities of the company once the Deed of Establishment (which contains the

Articles of Association) of the company has been approved by the Minister of Justice and

Human Rights ("MOJ").

Upon signing the Deed of Establishment before a notary public, a company is considered to be

established and can trade in its own name. However, in the period between signing the Deed of

Establishment and the receipt of MOJ approval for the Articles Of Association, the company is

considered to be a kind of unlimited liability company whose founders (shareholders) haveunlimited personal liability for the actions and liabilities of the company.


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Company Register maintained by the Department of Industry and Trade and published in the

State Gazette.

Accordingly, once MOJ approval has been obtained for the company's articles of association,

shareholders in an Indonesian company are only liable for the company's obligations to the

extent of their subscribed share capital, namely up to the nominal value of the shares held bythem. The reference to "PT" in all Indonesian company names is an abbreviation for Perseroan

Terbatas which means "limited (liability) company" and therefore equates to "Ltd".

However, even after MOJ approval of the company's articles of association has been obtained,

the Company Law provides that the benefit of limited shareholder liability may be lost in certain

circumstances.

Subject to certain restrictions, foreign persons may be shareholders in an Indonesian company

with the prior approval of the Capital Investment Coordinating Board ("BKPM").

FOREIGN COMPANY

A foreign direct investment company in Indonesia (known locally as "Penanaman Modal Asing"

or PMA), can take the form of a 100% foreign owned limited liability company or can be

established as a limited liability company through a joint venture with Indonesian partners.

Foreign Company, most often referred to by its Indonesian abbreviation- PMA, is governed

primarily by the Foreign Capital Investment Law No. 1 of 1967, amended by Law No. 11 of

1970 and the Company Law No.1 of 1995.

The Corporate Law requires that there are at least two shareholders in a PMA company, or any

limited liability company. The shareholders can be two individuals, two companies, or a mixture

of both. Therefore, in the case of a PMA company with full foreign ownership, the foreign

investor initially planning the investment in Indonesia must invite another foreign party to

participate in shareholding of the proposed company.

INCORPORATION OF PMA COMPANY

The Investment Coordinating Board (BKPM), the government body which processes and

handles FDI companies, issued an important deregulation package on PMA in May 1994 referred

to as PP-20/1994. It was seen as a very significant step toward a much more conducive and

attractive investment environment in Indonesia. The regulation:

1. Allows 100% FDI investment in selected areas of business2. Limits foreign direct investment to 95%, with a minimum of 5% ownership by an

Indonesian

3. Allows FDI investment with certain conditions


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4. Stipulates the sectors which are closed to FDI investmentOne can obtain a copy of the FDI application in English from Indonesian embassies overseas or

from the Investment Coordinating Board office either from the head office in Jakarta or from

regional offices in the provinces.

For those companies choosing to make a 100% foreign investment, there is a requirement that

15 years from the commencement of commercial operations, the 100% foreign shareholder must

sell at least 5% of the firm to an Indonesian entity. A company which is initially 95% foreign

owned is not subject to any divestment requirement.

The amount of capital to be invested in a foreign-owned company is decided by the investing

parties themselves, and the BKPM approval is based on the economics and scale of the project.

Foreign investment companies are basically free to choose where in Indonesia they will set up

operations, with the proviso that factories must be in areas zoned for industry or in an industrial

estate.

The life of foreign investment companies has been extended by allowing the renewal of the

fixed operating license (IUT) for an additional 30 years. In other words, the initial licenses are

valid for 3 years (SPPP BKPM), plus 2 x 30 years, for a total of 63 years.

The process of incorporation of a new foreign direct investment company:

1. Step 1. Prepare and send the application with required documentation, compiledaccording to the investment plan. Set up a joint venture agreement if you are making the

investment with Indonesian partners.

2. Step 2. Obtain the Initial License (SPPP BKPM), valid for 3 years.3. Step 3. Incorporation of SPPP BKPM

Establish Articles of Association with a Public Notary detailing proof of capital investment, and

send it to the Ministry of Justice for approval and issuance of State Gazette

i. Registration of company address with local council (domicile)ii. IRD registration (NPWP + PKP)

iii. Registration with the Department of Industry and Trade (TDP)5. Step 4. Key expatriate positions (work permits) and Fixed Operating License (30 years)6. Step 5. Prepare and send the 6-month report (LKPM) to the provincial BKPM office as

well as UUG (HO) nuisance act to the regional office of BKPM


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7. Step 6. Incorporate facilities- Master list/APIT or property ownership8. Step 7. Provincial approval for Fixed Licenses (BAP)9. Step 8. Fixed License (IUT) for 30 years is issued

A Limited Liability company is established either under foreign shareholders or through a joint

venture with Indonesians or wholly owned by Indonesian shareholders and must be approved by

the Ministry of Justice. It doesn't matter who is the owner of an Indonesian Limited Liability

company, they must comply with Indonesian law and are considered an Indonesian company and

the company can subsequently be changed or sold to the shareholders, foreign or Indonesian.

To get license of Change of Capital and Change of Owner the applications should be submitted

to BKPM. According to BKPM, there's no charge to arrange licenses.


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Chapter 4Dubai and its prospectus in the business spectrum


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Dubai Introduction

The basic requirement for all business activity in Dubai is one of the following three categories

of licence:

Commercial licences covering all kinds of trading activity; Professional licences covering professions, services, craftsmen and artisans; Industrial licences for establishing industrial or manufacturing activity.

These licences are all issued by the Dubai Economic Department. However, licences for some

categories of business require approval from certain ministries and other authorities: for

example, banks and financial institutions from the Central Bank of the UAE; insurance

companies and related agencies from the Ministry of Economy and Commerce; manufacturing

from the Ministry of Finance and Industry; and pharmaceutical and medical products from the

Ministry of Health.

More detailed procedures apply to businesses engaged in oil or gas production and related

industries.

Practising some trade activities (e.g. jewellery and insurance) requires the submission of a

financial guarantee issued by a bank operating in Dubai.

In general, all commercial and industrial businesses in Dubai should be registered with the Dubai

Chamber of Commerce and Industry.

Fifty-one per cent participation by UAE nationals is the general requirement for all Dubai-

established companies except:

Where the law requires 100% local ownership; In the Jebel Ali Free Zone, Dubai Internet City, Dubai Airport Free Zone, Dubai Media

City or the Dubai International Financial Centre;

In activities open to 100% AGCC (Gulf Cooperation Council) ownership; Where wholly owned AGCC companies enter into partnership with UAE nationals; In respect of foreign companies registering branches or a representative office in Dubai; In professional or artisan companies where 100% foreign ownership is permitted.

However, speaking in October 2004, following a visit by then US Trade Representative Robert

Zoellick to the United Arab Emirates, Mohammed Al Muzakki, undersecretary with the UAE
http://www.lowtax.net/lowtax/html/dubai