Cyprus & India signed a revised Double Taxation Avoidance Agreement (DTAA)

The revised DTAA between Cyprus and India, as an nounced on November 18, was published in Cyprus’ Gazette on 25 November 2016 and will replace the existing treaty which was concluded back in 1994.  

No changes have been observed on the withhold ing tax rates on dividends and interest, which re main at 10% (some exemptions apply). It is worth  noting that neither country withholds any tax on  outbound dividends. The withholding tax on roy alties has been reduced to 10% (previously 15%) to align with India’s local taxation on royalties.  

The definition of a permanent establishment (PE)  is extended. A building site or construction or in stallation project will constitute a PE, if it lasts  more than six months (previously twelve months).  

Additionally, the updated DTAA provides for source based taxation of capital gains arising from the aliena tion 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. Thus, the new source-based taxation regime will apply only to gains arising from the alienation of shares acquired on or after April 1, 2017. 

The revised agreement also includes provisions re garding the exchange of information between the two countries. Following the DTAA sign off, with a press release of the Ministry of Finance dated 16 December 2016, the Indian government announced that it has removed Cyprus from the list of countries with lack of effective exchange of information.

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