India and Cyprus new tax treaty: Mauritius still remains jurisdiction of choice for debt structuring.

Cyprus and India have completed the re-negotiation on the Double Taxation Avoidance Agreement between the two countries.

The amended agreement has not yet been made public, but a statement issued by the Cyprus Finance Ministry on the 30th June 2016, mentions that:

  • Following the entering into force of the amending Agreement, Cyprus will be removed from the list of notified jurisdictional areas, retrospectively, as from 1st November 2013.
  • As from 1st April 2017, the right for source based taxation on capital gains tax will be granted to India
  • Gains from disposal of shares acquired before 1st April 2017 are grandfathered

However, the statement made no mention of the transitional period benefit of concessional tax as now exists, in the revised Mauritius-India tax treaty.  The Mauritius transitional period (1st April 2017 to 31st March 2019) allows for the sharing of taxing rights between India and Mauritius, and this provides companies using the Mauritian jurisdiction a window of opportunity within which to structure their investments.

Also, the statement does not refer to a change in the rate of withholding tax on interest which under the current India-Cyprus tax agreement is at 10%. Therefore, Mauritius still remains the jurisdiction of choice to structure debt for foreign investors seeking to invest in India, as the amended India-Mauritius tax agreement provides that Interest arising in India to Mauritian residents will be subject to withholding tax in India of 7.5%, which is the lowest rate granted to a treaty partner.

The above comments are based on a statement issued by the Cyprus Finance Ministry and exact interpretation will be issued once the Protocol amending the treaty is made public.


Source: Ministry of Finance Cyprus$file/Announcementeng.pdf


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