New Cyprus-India Treaty For The Avoidance Of Double Taxation
Cyprus and India have signed a new double tax treaty which is expected to foster increased use of Cyprus as a gateway for investment both into and out of India.
The new treaty entered into force on 14 December 2016, with its provisions being effective in Cyprus as of 1 January 2017 and in India as of 1 April 2017. Simultaneously with the entry into force on 14 December 2016, the Indian Tax Authorities have rescinded the designation of Cyprus as a notified jurisdiction with retroactive effect from 1 November 2013. This means that a refund can be claimed for excess withholding tax paid during that period by eligible claimants.
The new treaty makes provision for a source-based taxation test of capital gains arising from an alienation of shares, replacing the residence-based test of the previous treaty. The source-based test mirrors the provisions recently inserted into the India-Mauritius as well as the India-Singapore treaty. It also expands the permanent establishment article.
Importantly, the new treaty makes provision 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.
Further, Cyprus will now be able to afford both investors and managers greater and more attractive opportunities to invest in India through an EU fund vehicle subject to robust regulation and compliance, at a time when India is experiencing great growth and investment in sectors such as infrastructure, Fintech and healthcare.
Cyprus and India have long enjoyed excellent trade and investment relations, and the new treaty improves the existing agreement between the two countries on the avoidance of double taxation and replaces the treaty previously in place between the two countries since 13 June 1994.
Cyprus' excellent tax infrastructure, boosted by the renegotiated treaty, together with its status a fully compliant and regulated EU investor, makes it a prime candidate for Indian FDI.