Cyprus and India signed on the 18th of November 2016 the revised double tax treaty between the two countries and a protocol that will allow India to tax capital gains in India.
The agreement will come into effect when both countries complete the ratification process in their respective countries and inform each other that they have done so. The terms of the agreement will be effective in Cyprus on or after the 1st of January following the date the treaty enters into force. In India the provisions of the treaty will be effective on or after the 1st of April of the fiscal year following the date the treaty comes into force.
Significant amendments of the revised tax treaty include:
1. Provisions for source based taxation on capital gains derived from alienation of shares.
2. The scope of ‘permanent establishment’ has been widened to include building sites, construction, installation projects and supervisory activities in connection with such a site if duration time is longer than 6 months.
3. Tax rate on royalties has been reduced from 15% to 10%.
4. Withholding tax at rate of 10% on dividends.
5. Withholding tax at rate of 10% on interest payments and 0% if the beneficial owner of the interest is the government, a political sub-division, a local authority of the other contracting state or certain Indian institutions defined in the agreement and any other institutions that might be determined in agreement between the authorities of the two countries.