T&L D-briefs - July 2025
T&L D-briefs is a bi-monthly tax and legal update, through articles, videos and other sources, all bundled together in a newsletter.
In this issue, we:
- Share important international and local tax developments;
- Comment on the upcoming Cyprus's Tax Reform;
- Inform you about the EU Blue Card and the application process.
Tax Developments
International Tax Developments
Cyprus resident company successfully claims tax exemption on income from the sale of shares under India-Cyprus tax treaty
More specifically, a Cyprus-incorporated taxpayer company successfully claimed benefits under Article 13 of the India-Cyprus tax treaty, specifically regarding capital gains exemption, which was confirmed by the recent court decision (Gagil FDI Ltd [TS-567-ITAT-2025(DEL)).
This case, presided over by the Income-tax Appellate Tribunal (ITAT), contested the tax authority’s assertion that the taxpayer functioned as a mere shell for routing Long-term Capital Gains to a U.S.-based entity. Despite the tax authority's claims and subsequent denial of treaty benefits on both capital gains and dividend income, the ITAT concluded that the taxpayer was duly managed in Cyprus, evidenced by the presence of Cyprus-based directors overseeing crucial decisions and possessing a Tax Residency Certificate from Cyprus. Furthermore, at the time of purchase of shares by Cyprus Company, Securities and Exchange Board of India (SEBI) and other regulating bodies had made detailed investigation and thereafter approved these investments. So, based on the taxpayer's legitimacy as a Cyprus resident investor the “pass-through entity” allegation was dismissed.
From a Cyprus tax perspective, the ITAT's decision underscores the importance of establishing economic substance and genuine management to leverage the benefits provided by double tax treaties effectively. Cyprus, as a jurisdiction, insists on robust compliance and substance to adhere to evolving international tax standards, particularly in the face of scrutiny over potential treaty shopping. This ruling highlights Cyprus’s regulatory environment's effectiveness in affirming taxpayers' legitimacy and providing them with tangible benefits under bilateral treaties. Furthermore, in the context of the Cyprus-India tax treaty, the implementation of the Multilateral Instrument (MLI) aims to counteract treaty abuse by ensuring that treaty benefits are only granted when there is substantial and genuine economic activity, aligning with the ITAT's emphasis on economic substance in the recent ruling.
So, for Cyprus-based holding companies, maintaining clear records of management activities, securing a valid TRC, and demonstrating operational substance are pivotal. As global tax regulations become increasingly stringent, this case exemplifies how Cyprus’s regulatory frameworks can effectively protect taxpayers' treaty rights while ensuring alignment with new international tax norms.
Local Tax Developments
VAT inspections by the Tax Authorities: Ensuring Proper Application of the eligibility of VAT 5% for the purchase/construction of main primary residence
During the summer period, the Tax Authorities will conduct intensive inspections, with main focus on coastal cities, to ensure the correct application of the reduced VAT Rate 5% for the purchase/construction of the main primary residence. Spot check visits will take place on a weekly basis between 08:00 to 20:00. Based on the VAT Legislation, the eligibility of VAT5% applies on any persons, Cyprus citizens or another state (aged 18 or older) who possess a residence in Cyprus for their main and primary residence. If the residence has not been used or ceased to be the main and primary residence within a ten-year interval, then a VAT liability is created for which the Tax Authorities requests to receive. The Tax Authorities argues the persons affected to contact them promptly to arrange the settlement of the VAT payable due to their incorrect application. Those with financial difficulties who are unable to settle the VAT payable in an one-off payment, the Tax Commissioner is willing to provide payment plans up to twelve instalments or, in exceptional cases, this period may be further extended. Follow the link below to find out more.
Thoughts on the Cyprus's Tax Reform
On Friday, 18 July, the Cyprus Ministry of Finance published six draft tax bills (link here) in relation to the so called “tax reform” for public consultation. Without commenting on the draft bills, this article reflects on the need for the modernisation of the tax system as part of a holistic tax reform.
Follow the link below to find out more.
News Alert: EU Blue Card Applications Now Open in Cyprus
As of 7 July 2025, Cyprus has begun accepting applications for the EU Blue Card, a residence permit for highly skilled professionals from non-EU countries. Eligible sectors include ICT, pharmaceuticals, and shipping. The permit grants access to employment, residency rights, and family reunification benefits, including labor market access for spouses.
Follow the link below to find out more.
Archive
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