Government’s decision to blacklist Cyprus for not providing tax data will hit developers and realty funds
Government of India’s decision to blacklist Cyprus for not providing tax data is set to hit developers and realty funds. Investors who have taken funds through Cyprus are likely to face a big decline in returns as developers will now be expected to withhold higher tax amounts. The investments have now jumped to 30% which were earlier structured around 10%.
Cyprus is the seventh most favourable FDI destinations for India and has been used extensively. But, now, owing to the higher tax incidence and unclear policy, people are routing their investments though countries like Singapore.
In the words of Ruchir Sinha, Head, Private Debt and Private Equity at legal firm Nishith Desai Associates, “The move could significantly impact current structures that have made investments through Cyprus. With the arm’s length pricing requirements between unrelated entities, withholding rate being increased and the possibility of expense disallowance, there could potentially be serious cash flow issues,”
“People have started looking at Singapore as a possible route due to a new guideline that says we need to have substance. Singapore can attract talent and has defined substance. It is an attractive destination as attracting manpower will not be difficult. Mauritius as a country will be difficult to attract substance,” said Vishakha Mulye, Managing Director and CEO of ICICI Venture Funds.
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