The revised DTAA between Cyprus and India, as announced 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 withholding tax rates on dividends and interest, which remain at 10% (some exemptions apply). It is worth noting that neither country withholds any tax on outbound dividends. The withholding tax on royalties 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 installation 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 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. 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 regarding 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.