Cyprus Emerging As New Tax Haven For Routing Investments

Bright Mediterranean sunshine, azure blue sky, succulent fruits, great grape wines, alluring bellydancers and orthodox Christianity. Long known as a holiday destination for European vacationers on a shoe-string budget, Cyprus is creating waves in corporate India for different reasons. Lawyers from this tiny country are doing the rounds of corporate corridors as part of their strategy to reposition it to rival Mauritius as a beach-head for routing investments into India.

I am very surprised to find lawyers from Cyprus evincing interest in India, said a senior partner in an Indian law firm, currently chalking out plans for the International Bar Association meet scheduled to be held in the Union capital in November.

 

Echoing the view, a corporate executive said, Cyprus is catching peoples attention.

The reason is not far to seek. India is giving final touches to a treaty with Cyprus to avoid double taxation and a similar treaty with Mauritius will be up for review by the end of the month. No wonder then, that financial advisors and corporate counsellors are crunching data to see how Mauritius and Cyprus compare on the various tax advantages.

For example, Mauritius currently has a corporate tax rate of 10 per cent for a shareholding of less than or equal to 10 per cent in an Indian company, and five per cent for shareholding of more than 10 per cent.

But, both foreign and domestic offshore corporates take advantage of the double taxation avoidance treaty and end up paying no taxes at all on their dividend income, which originates in India but are parked outside, and benefit from a duty rate which is lesser than that in India for dividends repatriated to Mauritius.

This clause has also turned Mauritius into a favourite site for locating corporate headquarters as companies try to save that extra penny.

But, according to corporate executives, all this may soon be history. Mauritius has decided to increase the tax rate to a flat 15 per cent from July 1 next year. This will turn overseas investors away, who would not see Mauritius as a suitable country to float their special purpose vehicles (SPVs).

And this is what the Cypriot lawyers are playing on to score points for their country. Predictably, they are pitching their hardsell on lower tax rates