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New Cyprus-India Double Tax Treaty

New Cyprus-India Double Tax Treaty

17 May 2017 Tax Law

A new treaty was signed between Cyprus and India on 18th of November 2016 which replaces the previous agreement of 1994, and it came into force on 1st of January 2017 in Cyprus and as from 1st of April 2017 in India.

Following the new double tax treaty, the Indian Tax Authorities have rescinded the designation of Cyprus as a notified jurisdiction with retroactive effect from 1st of November 2013, allowing the refund if excess withholding tax paid during the period by eligible claimants.

Capital Gains derived by a resident of Cyprus or India, also may be taxable in the country of investment, (source taxation rights) even if the company whose shares are alienated is not real estate rich company. This is a fundamental change. Nonetheless, under the grandfathering provisions that have been agreed, shares acquired prior to 1st of April 2017 will continue to be taxed on disposal in the contracting state of the seller.

The treaty provides for 10% withholding tax on dividends, interest and on royalties and fees for technical services. This rate is relevant in case of dividends paid from India. Cyprus does not impose withholding taxes except on Cyprus sourced royalty payments.

Additionally, the permanent establishment article has been amended and it now includes a building site, construction, assembly or installation project, or any supervisory activities in connection with such site or project with a duration exceeding six months, as well as the provision of consulting services via employees or other staff with a duration exceeding 90 days during any twelve month period.    

The new treaty provides for exchange of information by adopting Article 26 of the OECD Model Treaty into the treaty and assistance between the two countries for collection of taxes.