Cyprus is preparing changes to its multinational minimum tax legislation less than two years after adopting the EU framework imposing a 15% minimum effective tax rate on multinational and large domestic groups.
The Ministry of Finance has put an amending bill out for public consultation following observations from the European Commission over Cyprus’ transposition of the relevant EU directive into national law. Interested parties have until 5 September to submit comments.
The changes also come ahead of an OECD assessment of Cyprus’ implementation of the international Pillar Two tax rules, scheduled for autumn 2026.
Commission observations prompt changes
The bill amends legislation passed in December 2024 implementing Council Directive (EU) 2022/2523, as amended by Council Directive (EU) 2023/2861, on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups within the EU.
The Ministry of Finance said the amendments were drafted following observations made by the European Commission during its review of whether the directive had been correctly transposed into national legislation.
Under the Pillar Two framework, entities belonging to multinational enterprise groups or large domestic groups with annual revenues exceeding €750 million are subject to a minimum effective tax rate of 15%.
The framework is intended to curb tax practices that allow multinational companies to shift profits to jurisdictions where they face little or no taxation.
Domestic top-up tax included in bill
The framework also allows countries to introduce a Qualified Domestic Minimum Top-up Tax (QDMTT).
Cyprus’ proposed amendments incorporate the QDMTT with effect from 1 January 2026.
This mechanism allows additional tax to be collected domestically where the effective tax rate of an affected group falls below the 15% minimum established under Pillar Two.
Cyprus prepares for OECD assessment
The Ministry said the bill goes beyond the amendments prompted by the European Commission and includes additional changes aligned with OECD guidelines and recommendations.
The revisions come ahead of an assessment of the Republic of Cyprus expected in autumn 2026, which will examine whether the country’s legislative framework complies with the internationally agreed Pillar Two rules.
Once the public consultation has been completed, the bill is expected to be submitted to the Council of Ministers for approval before being sent to parliament for debate and a vote.
Around 1,900 Cyprus entities could be affected
When the original legislation was submitted to parliament in 2024, the Ministry of Finance also provided estimates of its potential impact.
Using Tax Department data from 2021 and 2022, the Ministry identified around 1,900 Cyprus entities that could be affected by the legislation.
At the time, it estimated that implementing the directive could generate an additional €200 million to €250 million in government revenue, provided there was no loss of business among the companies affected.
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