From January 1, 2024, the European Commission enforced a minimum corporate tax rate of 15% for multinational companies earning annual revenues of €750 million. However, in Cyprus and some other countries the implementation of this measure might be delayed by several months. The Ministry of Finance has submitted the draft legislation for legal review, causing the delay.

There’s a relatively small number of multinational corporations in Cyprus with a turnover of €750 million that would be affected by this specific tax. Yet, influential business associations argue that many multinational companies in the country will indeed be impacted.

This legislation aims to align the Republic with the EU Directive for ensuring a global minimum level of taxation for multinational company groups and large-scale domestic groups within the Union, also known as “Pillar 2.”

Despite the legislation’s enforcement this year, an exception lies in Article 12, which will take effect from January 1, 2025. Article 12 deals with the choice of applying an appropriate domestic tax. It mandates that “the Republic applies an appropriate domestic complementary tax.

All component entities with low taxation of the multinational group or the large-scale domestic group established in the Republic are subject to this domestic complementary tax for the fiscal year. The draft legislation underwent public consultation in early October 2023 and concluded by the month’s end.

The decision to impose a 15% minimum corporate tax on multinationals with a €750 million turnover was made by EU leaders in December 2022. This move, according to the EU, formalizes the implementation of the so-called “Pillar 2” rules, approved within the framework of the global agreement on international tax reform in 2021.

By implementing European regulations, incentives for companies to shift their profits to low-tax jurisdictions are reduced. “Pillar 2” restricts the so-called “race to the bottom,” i.e., the competition among countries to lower corporate income tax rates to attract investments.

Reports in foreign media highlight that some European countries are yet to adopt these regulations. Spain and Poland might enforce the law after national elections. Additionally, there’s concern from certain member states about the law’s implementation. Moreover, objections regarding increased taxation of multinationals are also being voiced by the United States and China.