India set to curtail CGT exemption in Cyprus tax treaty
25-Feb-2008The Indian government is proposing to strip the Cyprus-India tax treaty of its capital gains tax exemption benefits.
It is negotiating for an amendment under which Cyprus-resident individuals and companies would have to pay CGT at the rate of 10%.
It is also proposed that a limitation on benefits clause will be inserted to ensure that ineligible entities cannot gain a benefit under the tax treaty.
Cyprus does not impose CGT on its residents, and with India exempting the capital gains under the treaty, investors can currently avail themselves of benefits similar to the India-Mauritius tax treaty. Dividend income is also exempt from withholding tax.
The proposed amendments would be on a par with those recently made to the India-United Arab Emirates tax treaty, by which capital gains have been made taxable in the state where the gains are earned.
India is also seeking to renegotiate its tax treaty with Mauritius and, with the UAE and Cyprus treaties losing their tax concessions, the pressure on Mauritius to come to the table will increase.
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