Following the successful conclusion of negotiations, a revised Double Taxation Avoidance Agreement (DTAA) between Cyprus and India, together with its Protocol, was signed in Nicosia on 18 November 2016. The revised DTAA will replace the existing one that was signed on 13 June 1994.
The revised DTAA assigns taxing rights to the source country with regards to capital gains from the alienation of shares. Investments undertaken prior to 1 April 2017 are grandfathered, with the taxing rights on gains from the future disposal of such investments remaining exclusively with the state of residence of the seller.
The new Treaty also provides for assistance between the two countries for the purpose of collection of taxes, and updates the provisions relating to the exchange of information, largely in line with international standards.
In addition, the definition of a “permanent establishment” is expanded. A building site, construction, installation or assembly project, or supervisory activities in connection therewith, shall constitute a permanent establishment only if they last more than six months (instead of 12 months under the previous version of the treaty).
The rate of withholding tax for dividends and interest income remains the same at 10%, whereas the rate for royalty income is reduced from 15% to 10%.
Upon ratification and entry into force of the revised DTAA, the Indian authorities will proceed with rescinding the classification of Cyprus as a “notified jurisdictional area”, with retrospective effect as from 1 November 2013 (which was the date when Cyprus was classified as a notified jurisdictional area by the Indian authorities).
The revised DTAA is expected to provide clarity and certainty to prospecting investors, and to further develop and promote the trade and economic links between Cyprus and India.