IN447 - Cyprus Revised Tax Treaty with India

Cyprus is rapidly expanding its tax treaty network, as illustrated by new treaties with Bahrain (coming into force January 2017) and Latvia (ratified June 2016).

In addition, in November 2016, Cyprus and India signed a revised Double Tax Treaty. Comprehensive details of the treaty are yet to be released but a number of key measures have been confirmed.

Key Provisions of the Treaty

Once the treaty comes into force India will remove Cyprus from its blacklist, with retrospective effect from 1 November 2013.

The treaty also provides for the exchange of banking information.

Capital Gains Tax

The new Double Tax Avoidance Agreement provides for source based taxation of capital gains arising from the sale of shares, rather than the residence based taxation provided under the existing DTAA. India will tax gains on investments routed through Cyprus from 1 April 2017 onwards.

 ‘Grandfathering’ Clause for Investments

A ‘grandfathering’ clause for investments acquired before 1 April 2017 was introduced in the revised treaty. This clause provides certainty to taxpayers holding existing investments. When a Cyprus tax resident disposes of a grandfathered investment, Cyprus retains the exclusive right to tax the realised gains under the revised tax treaty. This is consistent with the existing tax treaty.

Taxation of Royalties

The revised treaty will tax royalties at a rate of 10%, previously royalty payments between the two countries were taxed at 15%.

Withholding Tax

In the existing Cyprus - India Double Tax Agreement, withholding tax on interest payments is 10%. It is yet to be confirmed if this rate will remain or if it will be reduced in the revised treaty.

Summary

The negotiation of the Cyprus - India revised Double Tax Treaty provides increased certainty to investors and this certainty will help to generate a significantly higher level of investment between the two countries.

Additional Information

If you would like additional information regarding the Cyprus - India Double Tax Treaty or details regarding other Cyprus tax treaties, please contact the Dixcart office in Cyprus: advice.cyprus@dixcart.com.

Categories: Cyprus, Multi-Jurisdiction, 2016