April 01, 2004 | By Keith Martin in Washington, DC

Indonesia told Mauritius that it plans to cancel a tax treaty between the two countries at the end of this year.

Many companies have made investments into Indonesia using holding companies in Mauritius, an island off the east coast of Africa, because of the reduced withholding tax rates on dividends and interest received by Mauritius companies and the bar against Indonesia taxing capital gains when a Mauritius company sells its shares.  The treaty will have no further effect after December 31 unless the two governments are able to negotiate new terms.

Meanwhile, the Indonesian government is proposing to set a flat corporate income tax rate of 28%.  The country currently has a three-tier rate structure for corporations with the top rate at 30%.  It also proposes to collect a minimum tax from companies that continually suffer losses.

Keith Martin