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Introduction

The Double Taxation Avoidance Agreement (DTAA) between the government of India and the government of the Republic of Cyprus aims to prevent double taxation and fiscal evasion concerning taxes on income and capital gains. This significant agreement was initially signed on November 18, 2016, and later supplemented by a protocol in December of the same year. The DTAA, along with its protocol, incorporates key provisions from the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) and officially came into force on January 20, 2017.

Applicability

The India-Cyprus DTAA encompasses the following taxes in the contracting states:

  • In India: Income tax and its surcharges
  • In Cyprus: Income tax, corporate income tax, special contribution for the defence of the Republic, and the capital gains tax

Key Takeaways

Here are the significant aspects of the India-Cyprus DTAA:

  1. Mutual Agreement Procedure: The DTAA provides for a mutual agreement procedure, allowing individuals who believe their taxation is not in line with the provisions of the convention to present their case before the competent authority of their resident contracting state.
  2. Withholding Taxes: The DTAA sets a withholding tax rate of 10% for dividends, interests, royalties, and fees for technical services. Additionally, it grants an exemption to interests earned by government institutions.
  3. Residency Criteria: A resident of a contracting state is defined as any person who, under the laws of that state, is liable to taxation therein based on factors like domicile, residence, place of management, or similar criteria. This also includes the state itself and any political subdivision or local authorities.
  4. Permanent Establishment: The threshold for determining a permanent establishment (PE) has been reduced to six (6) months. The insurance PE clause specifies that an insurance enterprise, except for reinsurance, shall be deemed to have a PE in India if it collects premiums in the territory of the other state or insures risks situated therein through a person other than an agent of independent status.
  5. Capital Gains Tax: Gains from the sale of immovable property located in another state may be taxed in that other state.
  6. Shipping and Air Transport: Profits from operating ships and aircraft in international traffic shall be taxable only in the state where the place of effective management is situated.

Inference

The India-Cyprus DTAA adheres to international standards and provides for mutual assistance between the two countries in the collection of taxes. It expands the scope of permanent establishments to allow for source-based taxation of business income. Furthermore, it includes provisions related to the exchange of information, consistent with international standards. This allows for the exchange of banking information for purposes beyond taxation, subject to the approval of the competent authorities of the country providing the information.

The DTAA has contributed to improved relations between the contracting states, fostering mutual cooperation and creating a favourable environment for economic activities and trade.

For comprehensive legal advice or guidance regarding the India-Cyprus Double Taxation Avoidance Agreement or any other legal matters, please feel free to contact Chandrawat & Partners. We specialize in international tax agreements and are dedicated to providing expert legal assistance for all your needs.

Our professional team is committed to offering the highest quality of legal services. We look forward to assisting you with any legal concerns or inquiries you may have. Your satisfaction and peace of mind are our top priorities.

If you require further information or wish to seek our expertise on this agreement or other legal matters, please do not hesitate to reach out to us. We are here to serve your legal needs with the utmost professionalism and diligence.

To know more about DTAA relations between India and Cyprus, please download our Guide.

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