Tax Corner – High Commission of India, Nicosia

India and Cyprus enjoy excellent tax cooperation grounded in a robust bilateral framework that promotes transparent investment, prevents fiscal evasion, and supports economic partnership. This cooperation is anchored by the Double Taxation Avoidance Agreement (DTAA) and reinforced through the Multilateral Instrument (MLI), creating a predictable and investor-friendly environment for businesses and individuals operating between the two countries.

India–Cyprus Double Taxation Avoidance Agreement (DTAA)

The revised Agreement between the Government of the Republic of India and the Government of the Republic of Cyprus for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income was signed on 18 November 2016 in Nicosia and entered into force on 14 December 2016. It replaced the earlier 1994 agreement and aligns closely with the OECD Model Tax Convention.

Key strengths of the DTAA include:

• Clear allocation of taxing rights to eliminate double taxation on income (including business profits, dividends, interest, royalties, and capital gains).
• Reduced withholding tax rates (generally capped at 10% on dividends, interest, and royalties, subject to beneficial ownership and domestic law).
• Provisions for exchange of information (Article 26) and assistance in the collection of taxes (Article 27), enhancing mutual cooperation against tax evasion.
• Grandfathering for capital gains on shares acquired before 1 April 2017.
• Methods for elimination of double taxation through the credit method.
• Updated permanent establishment rules and other modern provisions consistent with international standards.

The full text of the DTAA (including the Protocol) and the synthesised text incorporating MLI modifications are available on the Income Tax Department of India website: https://www.incometaxindia.gov.in/w/cyprus-synthesised-text-2

Multilateral Instrument (MLI)

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) is an OECD-led instrument that allows jurisdictions to efficiently modify existing bilateral tax treaties to implement BEPS (Base Erosion and Profit Shifting) measures without lengthy bilateral renegotiations. Both India and Cyprus signed the MLI on 7 June 2017. India deposited its instrument of ratification on 25 June 2019 (MLI entered into force for India on 1 October 2019). Cyprus deposited its instrument of ratification on 23 January 2020 (MLI entered into force for Cyprus on 1 May 2020).

The MLI modifies the India–Cyprus DTAA (notified as a Covered Tax Agreement). Provisions of the MLI generally entered into effect with respect to the India–Cyprus DTAA for taxes withheld at source on amounts paid or credited to non-residents where the event occurs on or after 1 April 2021, and for other taxes for taxable periods beginning on or after 1 April 2021 (as reflected in the jointly prepared synthesised text). The MLI introduces anti-abuse measures, including the Principal Purpose Test (PPT) and related preamble language, to ensure treaty benefits are not obtained through arrangements primarily aimed at obtaining those benefits improperly.

Cyprus Tax Reform and University of Cyprus Report

Cyprus has undertaken a comprehensive tax reform—the first major overhaul in over two decades—to modernise its tax system, enhance competitiveness, fairness, and fiscal sustainability, while supporting the green and digital transitions. The Economics Research Centre (CypERC / KOE) of the University of Cyprus was commissioned by the Ministry of Finance to prepare evidence-based recommendations through a multi-year project. The Centre’s final report and overview (including modelling of fiscal impacts, growth effects, and distributional outcomes) informed the legislative process. Key elements of the reform (applicable from tax years commencing 1 January 2026) include an increase in the corporate income tax rate from 12.5% to 15%, adjustments to personal income tax bands and the tax-free threshold, abolition of the deemed dividend distribution regime, reduction of the Special Defence Contribution rate on dividends, retention of key incentives (such as the Notional Interest Deduction and IP Box), and measures to strengthen compliance and broaden the tax base. The University of Cyprus analysis indicated the package is designed to be fiscally neutral to mildly positive while improving long-term sustainability and attractiveness for investment.

Further details and the University of Cyprus Economics Research Centre reports are available via the Centre’s website (https://www.ucy.ac.cy/erc/%ce%b1%cf%81%cf%87%ce%b9%ce%ba%ce%ae/taxreform/report/). A recent version of the Report is available for download at https://www.ucy.ac.cy/erc/wp-content/uploads/sites/125/2026/01/Report_Tax-Reform_Jan29_2026.pdf

Income Tax Act, 2025 – India’s Landmark Tax Reform and Ease of Doing Business

India has enacted a major reform of its direct tax framework through the Income-tax Act, 2025 (Act No. 30 of 2025), which received Presidential assent on 21 August 2025 and came into force on 1 April 2026, replacing the Income-tax Act, 1961. The new legislation significantly simplifies the tax code by reducing the number of sections from approximately 819 to 536, chapters from 47 to 23, and overall text volume by nearly half (from around 5.12 lakh words to about 2.6 lakh words). It replaces the dual concepts of “previous year” and “assessment year” with a single, uniform “tax year”, consolidates TDS provisions, removes redundant and archaic language, introduces clearer tables and formulae, and makes the law more reader-friendly.

These changes are designed to reduce interpretational ambiguity, lower compliance costs and litigation, expand presumptive taxation for small businesses and professionals (e.g., higher turnover thresholds with simplified book-keeping and audit requirements), and promote technology-driven, faceless processes. The reform enhances certainty and predictability for both domestic and foreign investors, supports the Government’s broader “Ease of Doing Business” agenda, and creates a more transparent and business-friendly tax environment—complementing India’s network of Double Taxation Avoidance Agreements, including the India–Cyprus DTAA.

Official text of the Income-tax Act, 2025 is available at: https://egazette.gov.in/WriteReadData/2025/265620.pdf (also accessible via the Income Tax Department portal at incometaxindia.gov.in under Tax Laws & Rules / Income-tax Act, 2025).

Foreign Direct Investment (FDI) from Cyprus to India

Cyprus remains an important source of FDI equity inflows into India. According to official data from the Department for Promotion of Industry and Internal Trade (DPIIT), Government of India:

Country-wise / Year-wise FDI Equity Inflow from Cyprus (in USD Million)

Queries, Feedback and Clarifications

Tax Brochures

Reporting of Specified Financial Transactions on 11-03-2026

E-Verification Scheme on 11-03-2026

FAQs on New Income Tax Act, 2025

Claiming Tax Benefit under India - Cyprus DTAA

Claiming Credit of Taxes paid Outside India

Obtaining Tax Residency Certificate

Reporting of International Transactions

Safe Harbour Application for International and Specified Domestic Transactions

Income Tax Clearance Certificate for Domiciled Person

Advance Pricing Agreements

Country by Country Reporting

Income Tax Clearance Certificate for Non Domiciled Person