Contractor compliance: Singapore and Indonesia sign tax treaty


19th February 2020

This week, the push towards an interconnected global tax system continued, with Indonesia and Singapore updating their bilateral tax treaty. Both countries are expected to be major players on the world stage in the coming decade – and already attract droves of international talent.

With Singapore recognised as the most pro-business regime in the world, and Indonesia currently the largest economy in Southeast Asia (and fourth most populous country in the world), it’s no surprise so many contingent workers are trying their hand there.

With such high demand, recruitment agencies doing business abroad will need to understand the nuances in the region. Here’s what you need to know about compliance in Singapore and Indonesia.


Earlier this month, Indonesia and Singapore took an important step in strengthening tax compliance by updating their 29-year old bilateral treaty, lowering the tax rate on royalties and net income of companies operating in both countries. The agreement was among several other deals signed by Indonesian President, Joko Widodo, and Singapore President, Halimah Yacob.

Commenting on the deal, Widodo stated ‘I am very satisfied with the progress of our cooperation.’ Indonesia and Singapore had been negotiating revisions to the double tax avoidance agreement for almost two years. President Yacob expressed similar sentiments, stating ‘this agreement sends a strong signal of the commitment of the two countries to strengthen economic cooperation in the midst of a challenging global economic situation.’

Singapore and Indonesia share close trade and investment ties, with bilateral trade amounting to US$65 billion. Under the agreement, Indonesian citizens are exempt from paying Singapore tax, and vice versa.



However, while the deal marks an historic moment of collaboration between Indonesia and Singapore – both countries have been working hard to boost compliance in recent years:


With only 30 million people from a labour force of 118 million on the tax register (and only 10 million filing tax returns) Indonesian authorities have been keen to increase revenues. In fact, in 2016 the nation conducted an amnesty where 800,000 evaders declared $350bn – equivalent to 40% of Indonesia’s GDP.

Furthermore, in 2018, the country joined the global treaty on the Automatic Exchange of Information (AEOI). Under the framework, tax auditors will soon be able to check Indonesian taxpayers are paying income tax on the overseas assets that they declared under the amnesty.


Singapore’s low taxes and other incentives for foreign investors have led to accusations of it being a tax haven. Resident taxpayers pay a progressive tax on personal income, with a top marginal rate of just 22%. The corporate income tax rate in Singapore is a flat 17%. However, it has also taken steps that may make compliance more difficult for contractors.

In 2019, plans were revealed that would tweak the country’s tax system in order to reduce the reliance on foreign workers. This means that incentives for those on Singapore’s Not Ordinarily Resident scheme will end by next year. The scheme, introduced in 2002, was designed to encourage foreign talent to relocate to Singapore by providing them with tax concessions.


Ultimately, there is nowhere for tax evaders to hide in countries like Indonesia and Singapore. Even for firms that are dedicated to compliance, there’s an increased likelihood of landing themselves in hot water. With a raft of new legislation, international treaties and agreements, compliance can be a minefield.

The complexity of international tax systems is daunting, and the headache that can come with it is best avoided. In order to take advantage of booming global economies, compliance should be left to the experts. For this reason, we recommend getting in touch with an international contractor management service that can take the weight off your shoulders.

To ease your mind on compliance, get in touch today.


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