|   Rental of Land/Buildings by Indonesian SPCs to Sponsor   |   Payment of Dividends from Indonesian SPCs to Singapore SPCs   |

Rental of Land and/or Buildings by the Indonesian SPCs to the Sponsor

• Article 4(2) Withholding Income Tax
  
  Article 3 of Government Regulation No. 5/2002 on the payment of income tax on income from the lease of land and/or buildings stipulates that income tax is required to be paid on income received or acquired by individuals or entities from the leasing of land and/or buildings consisting of land, houses, multi-storey houses, apartments, condominiums, office buildings, office-cum-living space, shops, shop cum house, warehouse and industrial space at the rate of 10.0% of the gross value of the land and/or building rental and shall be final in nature.
  
  The payment of rental on land and/or buildings leased by the Sponsor to the Indonesian SPCs will be subject to a final income tax at the rate of 10.0% on the gross value of the land and/or buildings' rent.
  
  
• Corporate Income Tax
  
  The imposition of final income tax does not mean that the income from the lease of land and/or buildings does not need to be reported in the annual income tax return (SPT PPh). The income still needs to be reported in the income tax return, but it does not need to be combined with the other income in the calculation of taxable income in the relevant tax year.
  
  
• VAT on the Rental of Land and/or Building
  
  Article 4 (c) and Article 7 of Tax Law No. 18/2000 stipulates that a 10.0% Value Added Tax ("VAT") shall be imposed on the rendering of taxable services within the Indonesian customs territory by a taxable entity.
  
  Thus, based on the above regulations, the four Indonesian SPCs must charge VAT on the rent of land and/or building (taxable service) to the Sponsor at the rate of 10.0%.
  
  

Payment of Dividends from the Indonesian SPCs to the Singapore SPCs

• Tax implications for the Indonesian SPCs
  
  
  1. VAT on the Payment of Dividends
     
     There will be no VAT on the payment of dividends.
     
     
  2. Article 26 Withholding Income Tax on the Payment of Dividends
     
     The Indonesian tax rules generally require a 20.0% tax to be withheld on the payment of a dividend from an Indonesian taxpayer to an offshore tax resident. Under the double tax treaty between Singapore and Indonesia, the rate of withholding tax is reduced to 10.0% on the payment of a dividend to a Singapore tax resident beneficial owner of the dividend. The reduced rate is available to a Singapore company only if the company submits an original copy of its certificate of domicile to the Indonesian payor prior to the payment of the dividend.
     
     On 7 July 2005, the Directorate General of Taxation in Indonesia issued a circular letter indicating that the benefits of Indonesia's double tax treaties would not be available to a recipient of Indonesian-sourced income who was not the beneficial owner of such income. The circular letter further elaborated that a "special purpose vehicle" which is a "conduit company", "paper box company", "pass-through company" or any similar form of entity would not qualify as the beneficial owner of payments received by it. It remains uncertain as to how the Indonesian tax authorities will decide whether or not the Singapore SPCs are the beneficial owners of dividends received from the Indonesian SPCs.
     
     In the event that the Singapore SPCs were viewed by the Indonesian tax authorities as conduit companies or pass-through companies, and therefore not as the beneficial owners of dividends received from the Indonesian SPCs, the investors in First REIT should in that case be viewed as the beneficial owners of the dividends. In that case it should still be possible to take the position that the reduced rate of withholding tax is applicable, to the extent that the investors in First REIT are tax resident in Singapore or any other jurisdiction with the same tax rate under their respective double tax treaty.
     
     There is no need for the Indonesian SPCs to obtain tax clearance or other approvals in order to declare or remit dividends.
     
     
• Payment of Shareholders' Loans
  
  
  1. The Repayment Principal of Shareholder's Loans
     
     The repayment of principal from the shareholders' loans will not be subject to any form of Indonesian tax as there are no thin capitalisation rules in Indonesia.
     
     
  2. Interest on Shareholders' Loans
     
     The Indonesian tax rules generally require a 20.0% tax to be withheld on the payment of interest from an Indonesian taxpayer to an offshore tax resident. Under the double tax treaty between Singapore and Indonesia, the rate of withholding tax is reduced to 10.0% on the payment of interest to Singapore tax resident beneficial owner of the interest. The reduced rate is available to a Singapore company only if the company submits an original copy of its certificate of domicile to the Indonesian payor prior to the payment of the interest.
     
     As set out above, the Directorate General of Taxation in Indonesia issued a circular letter indicating that the benefits of Indonesia's double tax treaties would not be available to a recipient of Indonesian-sourced income who was not the beneficial owner of such income. The circular letter further elaborated that a "special purpose vehicle" which is a "conduit company", "paper box company", "pass-through company" or any similar form of entity would not qualify as the beneficial owner of payments received by it. It remains uncertain as to how the Indonesian tax authorities will decide on whether or not the Singapore SPCs are the beneficial owners of interest received from the Indonesian SPCs.
     
     In the event that the Singapore SPCs were viewed by the Indonesian tax authorities as conduit companies or pass-through companies, and therefore not as the beneficial owners of interest received from the Indonesian SPCs, the investors in First REIT should in that case be viewed as the beneficial owners of the interest.
     
     In that case it should still be possible to take the position that the reduced rate of withholding tax is applicable, to the extent that the investors in First REIT are tax resident in Singapore or any other jurisdiction with the same tax rate under their respective double tax treaty.
     
     There is no need for the Indonesian SPCs to obtain tax clearance or other approvals in order to declare or remit interest payments.