In a press release dated December 16, 2016, the Indian government announced that it rescinded Cyprus’ classification as a notified jurisdictional area (NJA) on December 14, 2016. The rescission is effective retroactively from November 1, 2013 – the date that Cyprus was previously classified as an NJA by the Indian authorities.
The new double tax treaty (DTT) and accompanying protocol between Cyprus and India, signed in November 2016, also entered into force on December 14, 2016. The new DTT is effective January 1, 2017 in Cyprus and April 1, 2017 in India.
The new DTT provides for a 10% withholding tax (WHT) rate on dividends. The Protocol clarifies that, in India, this rate does not apply currently under Indian domestic law, which does not impose WHT on dividends paid by Indian companies to its shareholders.
A 10% WHT rate also applies on interest, royalties, and fees for technical services, except for interest where the beneficial owner is the government, a political sub-division, or a local authority of the other State or any other institution agreed upon between the two States.
For capital gains, the new DTT provides for sourcebased taxation on the disposition of shares in the following cases:
- Shares of a resident of the source State.
- Shares of a company whose property consists principally, directly or indirectly, of immovable property situated in the source State.
Importantly, the protocol provides a ‘grandfathering’ clause for investments in shares acquired prior to April 1, 2017 where it has been agreed that the taxation of a future disposal of such shares remains exclusively with the State of residence of the seller in all cases.
