Analysing the impact of the double taxation treaty on foreign direct investment in Indonesia

Foreign Direct Investment (FDI) is an important element in the era of globalisation and links between economies. Agreement between partner countries, particularly on the avoidance of double taxation, is believed to contribute to increasing flows of FDI. This study aims to examine whether agreements on the avoidance of double taxation have an effect on FDI and to discover what other factors have an influence on FDI in Indonesia. This study uses a number of data samples of double taxation treaties in Indonesia with partners from developed countries within the period from 1990 to 2014. Data processing uses the OLS regression analysis with time series data structure. The result of this study shows that an avoidance of double taxation treaty increases the flow of FDI into Indonesia. In addition, GDP per capita, resources rent and political conditions also affect FDI in Indonesia. Among these influencing factors, the treaty on the avoidance of double taxation has been the main factor that has had the most influence on FDI in Indonesia.