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Outbound Indian Investments via Cyprus: The key to the International Market
It is no news that India has steadily penetrated the international trade era. IT and Pharmaceuticals have been the buzzing
industries dominating the market for two decades with many more to come.
The benefits available under the Cypriot Tax System
Investing via Cyprus assumes an extensive range of benefits to investors. Most importantly, Cyprus is a low tax jurisdiction with
a most favourable tax regime, and a member of the EU. In line with the above, Cyprus offers:
The low Corporate Income Tax (CIT) rate of 10%, which is the lowest within in E.U. *
The ability to pull profits from foreign subsidiaries with no or very low withholding tax.
The zero withholding tax for payments to non-resident shareholders, creditors and licensors (when rights are exercised
outside Cyprus).
The fact that no capital gains tax is levied on the disposal of either property situated outside Cyprus or shares in
companies (assuming that their assets do not include immovable property situated in Cyprus).
The extremely favourable Double Tax Treaties (DTTs) it has signed with the most important countries in the world.
The use of Trusts for inheritance, wealth protection, financial planning, unanimity and other purposes.

*The taxability of a company to CIT in Cyprus, rated at 10%, is determined upon the residency status of the Company. The
same requirement is also applied with regard to the application of the DTTs. The residence of a company is determined
by where management and control is exercised. This means that irrespective of where the company is registered or
incorporated, its management and control must be exercised in Cyprus. Conventionally, management and control is said
to be established in Cyprus given that:
The majority of the Directors of the Company are residents in Cyprus- physical or legal persons;
Important Company decisions are taken in Cyprus by local directors.

The trend shows that higher substance requirements may be in place in the near future to establish management and
control in Cyprus, such as the real establishment of office premises with personnel, telephone-fax lines and economic
substance in Cyprus.



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Cyprus India Double Tax Treaty
The Treaty between the two countries has been in effect since 1994. It establishes, amongst others, tax treatment with
respect to dividends, interest, and royalties as well as immovable property. It is a very beneficial DTT with numerous
advantages to investors. It provides for the following withholding tax rates (WHT):
Dividends: 10% if recipient holds at least 10% of the shares of the paying company or 15% in all other cases
Interest: 10% if recipient holds at least 10% of the shares of the paying company or 15% in all other cases
Royalties: 15%
The above WHT rates are only applicable for distributions from India to Cyprus while Cyprus does not impose any WHT
on distributions to non-residents, persons or companies.
The main aspects of the Treaty focus on the following:
Place of Management
A resident, under the Treaty means a person liable to tax by reason of domicile, residence, place of management,
mentioned above. In Cyprus there are certain criteria that must be followed to establish such control, given that the
resident companies are liable to tax on their worldwide income, and the Corporate Income Tax rate being very attractive
(10%).
Permanent Establishment (PE)
According to the DTT provisions, a PE includes a fixed place of business, such as a place of management, a branch, an
office.a building site, a construction project. The leeway given is that a PE in general, does not include the use of
facilities for auxiliary/preparatory purposes, such as storage, display or delivery of goods, giving, in this way, some
breathing space for those Cyprus companies that have very limited activities abroad to carry on profiting from the
Corporate Income Tax rate of 10%.
Immovable property
The DTT provides that income derived from immovable property is to be taxed in the country where the property is
located.
Capital Gains Tax
Capital gains are taxed in the country where the alienator of the shares is resident. In Cyprus, sale of shares and other
securities is tax free under the Cyprus law. Gains from the disposal of shares by a Cyprus resident company to an Indian
company, the assets of which consist of immovable property, are taxed in India. With careful tax planning, even
transactions like this can indeed be tax-free and produce considerable benefits to an Indian or other investor.
Negotiations were initiated by India for the amendment of the current DTT. Common understanding was reached in 2006,
however there was no ratification. Since then, Cyprus has attempted to renegotiate on the place where capital gains from
the alienation of shares will be taxed.



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Elimination of Double Taxation
The Treaty opts in for tax credit by way of deduction of taxation. Tax credit is allowed on any tax imposed and already
paid on income, profit and gains already paid in the other country.

Indian Corporations using Cyprus to expand abroad
Cyprus can very well serve the Indian company expanding internationally too. It is extremely important for an Indian
corporation to be able to bring back home as much cash flow as possible. Therefore, any Euro saved from foreign taxes
is important. Especially where it comes to expanding in the EU, East or Western Europe, Cyprus will prove the most
important tax jurisdiction for an Indian investor.
The ability of Cyprus, thanks to the DTTs, to pull out of the various European countries for the Indian parent all its profits
with zero or very low WHT, is remarkable. By taking a closer look at the diagram below you will realise this potential.
Even in the case where WHT is applied on distributions of income to Cyprus, such tax is allowed as a tax credit in Cyprus
as mentioned above under the analysis of the Cyprus India DTT.
The gathering of the dividends received in the hands of the Cyprus company attracts no taxation in most cases.




Indian Parent
Company
Cyprus Holding
Company
EU Co Russia
Co
Ukraine
Co
China
Co
Dividends Nil* 5% 0% 10%
Interest Nil* 7% 0% 10%
Royalties Nil* 10% 0% 10%

*Relevant EU Directives must apply.
Dividends received in Cyprus:
ZERO corporation tax
(irrespective of participation %)

0% withholding tax on
dividends paid to parent

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Dividends (as well as interest and royalties) distributed to the non-resident parent company of a Cyprus Company in India
are exempt from any withholding taxes irrespective of the existence of any DTT. Interest and royalties are taxed in
theory at 10% in the hands of the Cyprus Holding Company. However, even in this case, both interest and royalties
income is taxed in Cyprus on a net margin basis, i.e. outbound interest and royalty fees are deducted from the
respective inbound income in order to reach the taxable base.
It is a major opportunity for Indian investors to create vehicles via Cyprus for their expansion. Cyprus is a predominantly
English speaking country, member of Commonwealth. Its legal system is based on English law and is characterised by
its simplicity and the absence of bureaucracy. Doing business in Cyprus is a pleasant and rewarding experience. Cypriot
professionals in the legal and accounting professions are mainly British educated professionals with a high-level of
expertise and quality of services and all the international professional firms are already in Cyprus for many years. The
gates are open from both sides for prosperous and very promising cooperation in trade giving a lot of benefits from tax
perspective. No wonder why Cyprus is often referred to as the key to international markets.

Eurofast Taxand
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Tel: +357 22 699 222













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