Cyprus and India sign revised Double Tax Treaty agreement

On 18 November, 2016 Cyprus and India signed a new Treaty for Avoidance of Double Taxation (Treaty), which will replace the existing treaty signed by two countries in June 1994. The treaty was signed by Ravi Bangar, High Commissioner of India to Cyprus, and Harris Georgiades, Minister of Finance, Cyprus.

The provisions of new Treaty will enter into force after the completion of necessary internal procedures in both countries for its ratification and is expected to come into effect on April 1, 2017. The new Treaty provides for source based taxation of capital gains arising from alienation of shares, instead of residence based taxation provided under the existing treaty. However, a grandfathering clause has been provided for investments made prior to 1 April, 2017, in respect of which capital gains would continue to be taxed in the country of which taxpayer is a resident.

The new agreement provides for assistance between the two countries for collection of taxes. It also updates the provisions related to Exchange of Information to accepted international standards, which will enable exchange of banking information and allows the use of such information for purposes other than taxation, with the prior approval of the Competent Authorities of the country providing the information. The new Treaty expands the scope of ‘permanent establishment’ and reduces the tax rate on royalty in the country from which payments are made to 10% from the existing rate of 15%, in line with the tax rate under Indian tax laws. It also updates the text of other provisions in accordance with the international standards and consistent policy of India in respect of tax treaties.

The signing of this agreement aims to provide stability and assurance to investors and contribute to further developing commercial and financial ties between the two countries. Cyprus was blacklisted by India as non-cooperative, but after the signing of this agreement, Cyprus’s removal from India’s blacklist will be effective retrospectively from 1 November, 2013.

The Cyprus Minister of Finance stated that “Updating, maintaining, and expanding the existing network of double tax avoidance treaties, which are of the highest financial and political importance, aims at further enhancing and attracting foreign investment, and Cyprus’s promotion as an international financial centre, especially when you reach an agreement with the second most populated country in the world”.