Cyprus: Revised Double Tax Agreement Between Cyprus And India Published

Last Updated: 10 January 2017
Article by Philippos Aristotelous

Corporate Tax, Cyprus

  • Introduction
  • Key features
  • Comment

Introduction

The revised double tax agreement between Cyprus and India, which was signed on November 18 2016, has now been published in the Government Gazette.

The new agreement closely follows the 2010 Organisation for Economic Cooperation and Development (OECD) Model Tax Convention, with only minor modifications, and the protocol to the agreement clarifies a number of provisions.

Key features

Taxes covered

The double tax agreement covers all taxes on income levied by either country or by any of the country's sub-divisions or local authorities, including taxes on capital appreciation and on gains from the alienation of movable or immovable property. The agreement applies to income tax, including any surcharge, in India and income tax, corporate income tax, special contribution for defence tax and capital gains tax in Cyprus.

Residence

Article 4 of the double tax agreement reproduces the provisions of the OECD Model Tax Convention regarding residence verbatim, with the 'tie-break' criteria for determining residence for individuals who are resident in both countries being, in descending order, the individual's:

  • permanent home and centre of vital interests; and
  • country of habitual residence and nationality.

If neither criterion is decisive, residence will be settled by mutual agreement between the two countries' tax authorities.

For legal persons, the place of residence is the place where the effective management of the enterprise is situated. If this cannot be determined, the issue will be settled by mutual agreement.

Permanent establishment

Article 5 of the double tax agreement, which deals with permanent establishment, also closely follows the OECD Model Tax Convention.

A building site, a construction, an assembly or installation project, or a supervisory or consultancy activity connected with any of these will be deemed to be a permanent establishment if it lasts for more than six months. A permanent establishment will also arise where an enterprise provides services – including consultancy service – through employees or other personnel for more than 90 days within any 12-month period. An insurance enterprise in one country will, except in regard to reinsurance, be deemed to have a permanent establishment in the other country if it collects premiums or insures risks there through any party other than an agent of independent status.

An enterprise will be deemed to have a permanent establishment if it has a representative in the territory of a country that habitually conducts any of the following activities on the enterprise's behalf:

  • concluding contracts;
  • maintaining stock from which it regularly delivers goods or merchandise; or
  • securing orders.

As in the OECD Model Tax Convention, the double tax agreement provides that an independent broker or agent that represents the enterprise in the ordinary course of business will not be caught by this provision.

Particular care needs to be taken regarding the issuing of general powers of attorney, so as not to risk unintentionally creating a permanent establishment, with potential adverse consequences.

Income from immovable property

As in the OECD Model Tax Convention, income from immovable property may be taxed in the territory of the country where the property is situated.

Business profits

Article 7 of the double tax agreement follows the principles outlined in the corresponding article of the OECD Model Tax Convention, but includes a number of amplifications and clarifications. The profits of an enterprise are taxable only by the country in which it is resident, unless it conducts business in the other country through a permanent establishment there, in which case the profit attributable to the permanent establishment may be taxed by the country in which it is located. Intra-group management charges, interest and royalties are disregarded when determining the profits of a permanent establishment.

International shipping and transport

Profits from the operation of ships or aircraft in international traffic (including interest directly related to such operations and income from containers, trailers and related equipment) are taxable only by the country in which the enterprise is resident. Income from the use of containers, trailers and related equipment entirely within a country may be taxed in that country.

Dividends

Dividends paid by a resident of one country to a resident of the other country are taxable in the country in which the company paying the dividends is resident. However, if the beneficial owner of the dividends is a resident of the other country, the tax may not exceed 10% of the gross dividend. There is no minimum shareholding threshold.

Article 1 of the protocol to the agreement stipulates that dividends paid by Indian companies are exempt from tax pursuant to Section 10(34) of the Income Tax Act 1961 and that, so long as this remains the case, there will be no withholding tax from dividends paid by an Indian company to its shareholders.

Similarly, there is no withholding tax on dividends paid overseas from Cyprus.

Interest

Interest arising in one country and paid to a resident of the other is taxable in the country of origin. If the beneficial owner of the interest is a resident of the other country, the tax may not exceed 10% of the gross interest. The usual anti-avoidance provisions restrict relief to arm's-length interest in transactions between related parties.

Interest paid to local and national government bodies and national banks is exempt from these provisions.

As no withholding tax is levied on interest paid overseas from Cyprus, the effective rate for Cyprus is nil.

Royalties

Royalties and fees for technical services arising in one country and paid to a resident of the other are taxable in the country of origin. If the beneficial owner of the royalties is a resident of the other country, the tax may not exceed 10% of the gross amount. As with interest, relief is restricted to arm's-length amounts where transactions involve related parties.

Capital gains

Gains derived by a resident of one country from the disposal of immovable property in the other, or from the disposal of immovable or movable property associated with a permanent establishment in the other, are taxable by the country in which the immovable property or the permanent establishment is situated. Similarly, gains from the disposal of company shares which derive their value (directly or indirectly) principally from immovable property situated in one country are taxable in that country. Gains from the disposal of other shares are taxable in the country in which the company issuing the shares is resident. However, Article 2 of the protocol to the agreement makes an exception for shares acquired before April 1 2017. Gains from the disposal of shares acquired before that date are taxable only in the country in which the disponor is resident.

Gains from the disposal of all other property (including ships or aircraft operated in international traffic) are taxable only in the country in which the disponor in resident.

Elimination of double taxation

Elimination of double taxation is achieved by the credit method. The credit is limited to the amount of tax that would be payable on the income concerned in the country of residence.

Exchange of information

The exchange of information article reproduces Article 26 of the OECD Model Tax Convention almost verbatim. It adds a provision enabling a recipient of information to use it for purposes other than those specified, on condition that the laws of both countries permit such use and the competent authority of the country providing the information agrees.

Article 4 of the protocol to the agreement makes clear that neither country is obliged to carry out measures at variance with its laws, administrative practices or public policy regarding the collection of taxes. In this respect, Cyprus's Assessment and Collection of Taxes Law provides robust safeguards against abuse of the information exchange provisions by requiring the country that requests information to fulfil rigorous specified procedures to demonstrate the foreseeable relevance of the information to the request. A request must be more than an email containing the name and identifying information of the individual concerned. Rather, a detailed case must be made with the criteria set out in a formal, reasoned document. This means that the authorities requesting the information must have a strong case before making the request.

Requests for exchange of information are dealt with by a specialist unit and the informal exchange of information between tax officers bypassing the competent authority is prohibited. As a final safeguard, the written consent of the attorney general must be obtained before any information is released to an overseas tax authority.

Assistance in collection of taxes

The double tax agreement reproduces the corresponding article of the OECD Model Tax Convention almost verbatim. It adds a provision making clear that the agreement does not give either country access to the courts of the other.

Entry into force and termination

The agreement will enter into force when the two governments inform one another that the requisite constitutional procedures have been completed. Its provisions will take effect from the beginning of the following tax year. The tax year follows the calendar year in Cyprus and begins on April 1 in India.

Termination of the agreement will require written notice by either country given at least six months before the end of any calendar year, whereupon the agreement will cease to have effect from the beginning of the following tax year. Notice may be given only after the agreement has been in force for five years.

Comment

India is one of the world's largest and fastest growing economies. The signature of the agreement marks a significant milestone in the restoration of tax relations between the two countries and provides new opportunities for both trade and investment. While the revised agreement no longer provides exemption from capital gains tax on investments made after April 1 2017, it places Cyprus on a similar footing to Mauritius and Singapore in this regard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Philippos Aristotelous
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.