On 18 November 2016, Cyprus and India signed revisions to the existing tax treaty which will mean Cyprus continues to play a beneficial role in funding new projects in India.
According to the revised tax treaty, the maximum withholding tax rates on dividends, interest and royalties will be as follows:
- Dividends: 10% (Neither country currently imposes withholding tax on dividends)
- Interest: 10% (Unless beneficial owner is a governmental organisation, in which case it is 0%)
- Royalties: 10% (currently 15%)
Other revisions include:
- Definition of a permanent establishment (PE) is broadened to include a building site/development project will constitute a PE if it lasts more than six months (currently twelve months)The new treaty provides Source-based taxation of capital gains arising from the alienation of a company’s shares. Investments undertaken before 1 April 2017 will be grandfathered, with taxation rights over gains on the disposal of such shares at any future date remaining solely with the state of residence of the alienator
- Updated exchange of information article is included in line with internationally accepted standards
The revised tax treaty will enter into force once both Cyprus and India exchange notifications that their formal ratification procedures have been completed. The provisions of the treaty will have effect in Cyprus on or after 1 January following the date the treaty enters into force, and in India on or after 1 April of the fiscal year following that in which the treaty enters into force.
After the treaty enters into force, the Indian government will rescind the classification of Cyprus as a “notified jurisdictional area” with retroactive effect from 1 November 2013.