The revised double taxation agreement between Cyprus and India was signed on 18 November in Nicosia.
As was widely expected following similar changes to India's double tax agreements with Mauritius and Singapore, the agreement provides for source-based taxation of gains from the alienation of shares. However, investments undertaken before 1 April 2017 are 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 seller.
The agreement will enter into force when both countries’ legal ratification procedures have been completed, and will take effect from the beginning of the following calendar year. Therefore, if ratification can be completed in time for the agreement to enter into force before the end of 2016, it will be effective in respect of taxes withheld at source on income derived on or after 1 January 2017, and in respect of other taxes on income, for taxes chargeable for any fiscal year beginning on or after 1 January 2017.
When the amended agreement enters into force, the Indian authorities will rescind the classification of Cyprus as a notified jurisdictional area under Section 94A of the Indian Income Tax Act 1961, with retrospective effect from 1 November 2013.
While the revised agreement no longer provides exemption from capital gains tax on investments made after 1 April 2017, it places Cyprus on no less advantageous a footing than Mauritius and Singapore in this regard, Furthermore, by bringing to an end the notified jurisdictional area designation it will eliminate the bureaucratic burdens this imposed.
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