The Director-General of Taxation has issued circular letter SE-04/PJ.34/2005 dated 7 July 2005 in which guidance is given on how the term "beneficial owner" should be interpreted under tax treaties entered into by Indonesia. According to the circular letter, the beneficial owner is the actual owner of the income in the form of dividend, interest and royalty.

The beneficial owner must be either an individual or a corporate taxpayer that is fully entitled to directly enjoy the benefits of the dividend, interest or royalty. Special purpose vehicles like conduit companies, paper box companies, pass through companies, etc. are not considered to be the beneficial owner.

If the dividend, interest or royalty is paid to parties that are not considered beneficial owners, the payer is obliged under Art. 26 of the Income Tax Act to withhold income tax…