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Indonesia’s Free Trade Agreements

As a member of ASEAN, Indonesia is part of ASEAN’s regional free trade agreements (FTA) as well as its own bilateral agreements. These provide a wide variety of benefits such as the removal or reduction of tariffs.

These are:

ASEAN Free Trade Area

The ASEAN Free Trade Area (AFTA) was signed in 1992 with the aim to be a catalyst to help ASEAN become a production base for global markets. Under the agreement, goods originating in ASEAN have applied a 0-5 percent tariff rate.

Preferential Tariff Arrangement-Group of Eight Developing

The agreement, also known as D-8, was signed in 2008 and includes the countries of Malaysia, Iran, Indonesia, Pakistan, Nigeria, Bangladesh, Egypt, and Turkey. Tariffs between these countries have been reduced ranging from 25-8 percent for various products.

ASEAN-Australia and New Zealand FTA

The ASEAN-Australia and New Zealand Free Trade Area (AANZFTA) came into force in January 2010. Through the AANZFTA, 90 percent of tariffs were eliminated and barriers to trade in services have been progressively liberalized following increased market access.

ASEAN-People’s Republic of China FTA

This agreement was signed in 2002 and by 2004, Indonesian exports were open to the Chinese market. Some 90 percent of tariffs on imported goods have been reduced or eliminated.

ASEAN-Hong Kong, China FTA (AHKFTA)

This trade agreement came into force in June 2019. Indonesia will eliminate duties for 75 percent of its products within 10 years and another 10 percent of its tariff lines within 14 years.

ASEAN-India FTA

The ASEAN-India Free Trade Area (AIFTA) was signed in 2009, resulting in one of the world’s largest FTAs. The agreement has seen tariffs eliminated for 90 percent of products traded between the two regions which include products such as palm oil, pepper, tea, and coffee.

ASEAN-Japan Comprehensive Economic Partnership

The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) was enforced in 2008. AJCEP liberalizes trade in goods between Japan and the bloc particularly in areas such as intellectual property, agriculture, fisheries, and forestry. 

ASEAN-Republic of Korea Comprehensive Economic Cooperation Agreement

The ASEAN-Republic of Korea Free Trade Agreement (AKFTA) was signed in 2005 and has eliminated more than 90 percent of tariffs between ASEAN and the Republic of Korea. Additionally, the agreement has also liberalized the investment process and there has been enhanced cooperation in trade services.

Regional Comprehensive Economic Partnership

[video file='https://cdn.jwplayer.com/videos/pmiSWWLl-sZcHHUE7.mp4' image='https://resource.dezshira.com/resize/900x506/Misc/banners/web_2.jpg' title='The Rcep Advantage  Part 3 – Trade Opportunities In Indonesia']

The Regional Comprehensive Economic Partnership (RCEP) free trade agreement, signed off on November 15, includes all ten ASEAN countries, along with Australia, China, Japan, New Zealand, and South Korea. While the latter five nations are mainly technically advanced nations and have adopted high-end factories, labor and production costs are relatively high.

The RCEP has the potential to bring significant opportunities for participating countries as it is set to encompass about 45 percent of the world’s population (3.4 billion) and a third of global domestic product (GDP) (about US$20 trillion). Furthermore, the bloc accounts for total trade of US$10 trillion and 26 percent of foreign direct investment (FDI) flows.

Indonesia-Pakistan PTA

Indonesia and Pakistan signed a preferential trade agreement (PTA) in 2013. Trade between the two countries reached more than US$2 billion in 2019, with Pakistan being a major export market for Indonesian palm oil products. Both countries are aiming to upgrade the PTA into an FTA going forward. 

Indonesia-Chile IC-CEPA

The Indonesia-Chile Comprehensive Economic Partnership Agreement (IC-CEPA) was ratified in October 2019. Under the agreement, Chile has eliminated 89 percent of tariffs for Indonesian products while Indonesia eliminated 86 percent of tariffs for imports from Chile.

[tips title="Did You Know"]Palm oil and its derivatives, automotive products, footwear, furniture, and textile products are some of the main products imported by Chile from Indonesia.[/tips]

Indonesia-Japan Economic Partnership Agreement

The Indonesia-Japan Economic Partnership Agreement (IJEPA) came into effect in July 2008. Indonesia eliminated 93 percent of its 11,000 tariffs on Japanese goods and Japan eliminated 90 percent of its 9,000 tariffs on Indonesian products. Both countries are set to upgrade IJEP.

Indonesia and Australia IA-CEPA

On February 10, 2020, Indonesia and Australia ratified the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA).

Additionally, Indonesia and Australia have agreed to a skills development package, which includes a skills exchange program and technical assistance to improve the institutional capacity building.

Indonesia’s DTA network

Indonesia has signed over 60 double tax avoidance (DTA) agreements with various countries, which eliminate instances of double taxation from cross-border activities such as trade, knowledge sharing, as well as investments between two countries. . The withholding tax rate on dividends are set between seven to 15 percent whereas interest rates are set between five to 15 percent unless an applicable tax treaty is in place wherein there will be no tax.

The tax rate for royalties is between 10 to 15 percent.

Foreign investors should seek the help of registered tax advisors to better understand how they can benefit from this network.

Countries with Signed Double Tax Avoidance Agreements with Indonesia

Algeria

Czech Republic

Jordan

Norway

Slovakia

Tunisia

Armenia

Denmark

Korea (North)

Pakistan

South Africa

Turkey

Australia

Egypt

Korea (South)

Papua New Guinea

Spain

Ukraine

Austria

Finland

Kuwait

Philippines

Sri Lanka

United Arab Emirates

Bangladesh

France

Laos

Poland

Sudan

United Kingdom

Belarus

Germany

Luxembourg

Portugal

Suriname

United States of America

Belgium

Hong Kong

Malaysia

Qatar

Sweden

Uzbekistan

Brunei

Hungary

Mexico

Romania

Switzerland

Venezuela

Bulgaria

India

Mongolia

Russia

Syria

Vietnam

Canada

Iran

Morocco

Serbia

Taiwan

Zimbabwe

China

Italy

Netherlands

Seychelles

Tajikistan

 

Croatia

Japan

New Zealand

Singapore

Thailand

 

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