Revised Tax Treaty signed with India

Revised Tax Treaty signed with India: The last tax treaty between Cyprus and India has been signed in 1994.  This treaty has now been revised by the two countries and has now replaced the old treaty.  There has been ongoing negotiations between the parties and have been concluded in June 2016.  Following those negotiations, the two countries have finally concluded on even terms and signed a revised treaty last month, already published in Cyprus Gazette.

Revised Tax Treaty signed with India: What are the revised terms of this agreement?

Following the conclusion of this arrangement, there has been agreement in terms regarding maximum withholding tax rates on dividends, interest and royalties as follows:

• Maximum tax on dividends is at 10%.  It is noteworthy the fact that neither of these countries impose withholding tax on dividends.
• Maximum tax on Interest is at 10%. This rate would not apply in cases where the beneficial owner of the interest is the government.  This applies also to political sub-divisions, local authorities of other contracting states.  Additionally, defined Indian institutions in the agreement are exempted as well as other institutions agreed upon between competent authorities.  In those cases there is no tax applicable.
• Maximum tax on Royalties is at 10%. This number has been reduced from the previous rate of 15%

Other important revisions under the new treaty

• The new treaty broadens the definition of a permanent establishment, which includes a construction project or a building site provided that it lasts more than six months
• The new treaty provides for source-based taxation of capital gains arising from the alienation of a company’s shares.
• The new treaty includes updated terms regarding exchange of information which is in line with internationally accepted standards.

When does the revised treaty enter into force?

The updated tax treaty will enter into force once both counties exchange formal ratification notifications and will come into effect in Cyprus on January following agreement date.

Conclusion

The revised tax treaty is plays an important role in the establishment of good relations between the two countries as well as maintaining an important role in funding India’s new projects.