ARTICLE 6

Income from Immovable (Real) Property

This Article provides that income from immovable (i.e., real) property and gain on the disposition of such property may be taxed in the Contracting State where such property is situated. In the United States, the taxes that may be levied include the branch taxes imposed by section 884, where applicable. This rule applies to income from real property of an enterprise or income from such property which is used for the performance of independent personal services, even in the absence of a permanent establishment or fixed base. The Article does not define income from real property, which is defined under the respective taxation laws of the Contracting States. However, it provides that income from real property includes income from the extraction of minerals and other natural resources, gain on the disposition of the right giving rise to such income, and income from the use in any form or the leasing of real property. Income on indebtedness secured by immovable property or secured by a right giving rise to income from the extraction of natural resources is not considered income from real property. Such income is treated as interest subject to the provisions of Article 12 (Interest).

This Article does not prescribe the manner in which real property income is to be taxed by the State of source. However, both the United States and Indonesia allow taxation on a net basis.

Income from immovable property may also be taxed in the Contracting State of residence (or citizenship), in accordance with paragraph 3 of Article 28 (General Rules of Taxation), subject to relief from double taxation in accordance with Article 23 (Relief from Double Taxation).