India: India specifies Cyprus as a notified jurisdictional area

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

India: India specifies Cyprus as a notified jurisdictional area

nayak.jpg

jain.jpg

Rajendra Nayak


Aastha Jain

The Indian Tax Law (ITL) provides a toolbox of measures to discourage transactions with entities in non-cooperative tax jurisdictions which do not exchange information with India. It empowers the government of India (GoI) to specify any country or territory outside India as a notified jurisdictional area (NJA) having regard to lack of effective exchange of information. Any transactions entered into by taxpayers in India with a person located in an NJA would attract adverse consequences under the ITL. India entered into a tax treaty with Cyprus in 1994 pursuant to which both the countries are under an obligation to exchange information necessary to prevent fraud or evasion of taxes. As per the GoI, since Cyprus has not been providing information required by the Indian Tax Authorities, it is notified as an NJA with effect from November 1 2013.

As a consequence, any transaction between a taxpayer and a person located in Cyprus will be deemed to be an international transaction subject to transfer pricing provisions of the ITL and all parties to such transaction would be deemed to be associated enterprises. This entails maintenance of documentation and reporting as prescribed under the ITL. All payments made to a person in Cyprus, which are chargeable to tax in India, would attract a higher withholding tax at 30% rate. Further, to claim deduction of any payments made to person located in Cyprus, the taxpayer would need to maintain documents and furnish prescribed information to Indian tax authorities. Where any payments are made to a financial institution in Cyprus, the taxpayer is required to furnish an authorisation to Indian tax authorities to collect any requisite information from such financial institution. Any sum received or credited from a person located in Cyprus shall be deemed to be income of the taxpayer unless it satisfactorily explains the source of such funds in the hands of the payer in Cyprus or beneficial owner such funds (if it is not the payer). Further, a person located in NJA (Cyprus) is defined to include (a) a resident of NJA or (b) an entity established in NJA or (c) a permanent establishment in NJA of any person.

The notification of NJA is consistent with the global trend of introducing counter measures to deal with "non-cooperative tax jurisdictions" and strengthen tax enforcement. Cyprus is the first jurisdiction to be notified as an NJA in India. Pursuant to this, the Cyprus government has issued a press release declaring its intention to resolve the situation with the GoI and clarifying that this development does not impact the operation of the India-Cyprus tax treaty. Taxpayers having business arrangements involving Cyprus will need to review the impact of this notification on their transactions/business structures and follow the developments between the two governments on this front.

Rajendra Nayak (rajendra.nayak@in.ey.com) and Aastha Jain (aastha.jain@in.ey.com)

Ernst & Young

Tel: +91 80 4027 5275

Website: www.ey.com/india

more across site & shared bottom lb ros

More from across our site

Countries which care about fair taxation of tech multinationals and equitable global distribution of wealth should back the UN’s tax framework, writes economist Abdelmalek Riad
The cuts disproportionately affected staff in certain positions, the report also found; in other news, MHA announced the €24m acquisition of Baker Tilly South East Europe
The plan aims to improve the efficiency, transparency, and effectiveness of direct tax administration in India
Meanwhile, South Africa’s finance minister has accepted a court decision on suspending a VAT increase and US President Donald Trump mulls a 100% tariff on foreign films
Jaime Carey speaks about the benefits of his tax background, DEI values, the use of AI for a smarter legal practice, and other priorities that will define his presidency
Historically low levels of attrition over consecutive years made a ‘difficult decision’ necessary, PwC has reportedly said
WTS Global is also vetting new potential member firms in Algeria, Cote D’Ivoire and Benin, Kelly Mgbor tells ITR in an exclusive interview
The scope of qualifying pillar two tax credits could reportedly be broadened; in other news, hundreds of IRS appeals staff are to resign
For many taxpayers, the prospect of long-term certainty that a bilateral APA offers can override concerns about time, cost and confidentiality
Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
Gift this article