The government expects additional revenue of €200–250 million in 2026 from the corporate tax increase to 15% for multinationals, passed by Parliament last Thursday.
While banks avoided an extraordinary tax following the rejection of AKEL’s proposal by a tied vote in Parliament last Thursday, new taxation on banks in the near future seems inevitable.
This development stems from the increase in corporate tax for multinationals to 15%, in line with a long-overdue EU Directive that Cyprus implemented with last Thursday’s vote.
Finance Minister comments on bank contributions
Speaking yesterday, Finance Minister Makis Keravnos commented on annual state revenue from banks. He stated, “The state collects approximately €200 million annually from banks through income tax and the special levy on deposits.” However, he added that, “With the new tax under Pillar 2, the 15% for companies with a turnover exceeding €750 million, large Cypriot banks will certainly be affected,” and, “therefore, there will be additional revenue from banks.”
This argument was one of the reasons cited by the Association of Banks and MPs who opposed AKEL’s proposal. However, the 15% corporate tax increase via a supplementary tax is not expected to affect all banks but will certainly impact the two largest banks. These banks are also expected to announce measures to support borrowers by the end of the week, possibly as early as today.
Impact on large banks
Both Bank of Cyprus and Hellenic Bank referred to the issue in their latest financial results for the nine months ending 30 September.
Bank of Cyprus noted:
“On 22 December 2022, the European Commission approved Directive 2022/2523, introducing a minimum effective tax rate of 15% for the global activities of large multinational groups (Pillar II taxation). The Group expects to fall within the scope of the legislation and has estimated its exposure to Pillar II tax at 1.5% of profit before tax for the nine months ending 30 September 2024. Due to the complexity of the calculation rules and the fact that the final legislation has not yet been implemented, the impact of the reform has been estimated at up to 2% of pre-tax profits. Further optimisation will be assessed as the relevant legislation is enacted and implemented.”
Hellenic Bank stated:
“According to the Income Tax Law 118(I)/2002 as amended, the taxable profits of the Bank and its subsidiaries in Cyprus are subject to income tax at a rate of 12.5% (…). Following the acquisition of 56% of the Bank’s share capital by Eurobank S.A., the Bank and its subsidiaries will be subject to the provisions of Pillar 2, provided the law is enacted or effectively implemented before 31 December 2024.”
1,900 companies expected to be affected
Banking institutions and hundreds of other companies that are expected to be impacted await the publication of the relevant legislation and its detailed provisions. During discussions in the Parliamentary Finance Committee on the draft law, “The Global Minimum Tax Level for Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union Law of 2024,” representatives of the Ministry of Finance and the Tax Department indicated that approximately 1,900 entities in Cyprus would be affected.
According to estimates submitted to Parliament, the implementation of the measure is expected to increase state revenue in 2026 by €200–250 million. However, these estimates were made cautiously and do not account for changes in strategic decisions by entities or potential relocations, as noted in the Finance Committee’s report forwarded to Parliament alongside the passed bill.
Incentives to retain companies
The same report also records the Ministry of Finance’s intention to discuss potential incentives with stakeholders in 2025. These incentives aim to prevent companies from leaving the island due to the loss of one of the country’s comparative advantages. Any incentives must not undermine Pillar 2 rules and must comply with EU state aid regulations.
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Source: Economy today
