January 7th, 2025,
The Republic of Cyprus has transposed into national law the Pillar Two Directive, namely EU Directive 2022/2523 of December 14th, 2022, according to which a 15% minimum effective tax rate is imposed on multinational enterprises (ΜΝΕ) groups and large-scale domestic groups with consolidated annual revenues exceeding € 750m. The bill was passed by the Cyprus House of Representatives on December 12th, 2024, and includes provisions from the Organisation for Economic Co-operation and Development (OECD) and its Base Erosion and Profit Shifting (BEPS).
It also incorporates the Income Inclusion Rule (IIR) for financial years starting from December 31st, 2023, which requires a parent entity of an MNE group or a large-scale domestic group to pay tax on its low-taxed income and the low-taxed income of its subsidiaries to ensure that the group’s overall income is taxed at 15%.
As per December 31st, 2024, the Domestic Minimum Top-up Tax (DMTT) applies to the low-tax income of entities and joint ventures of an MNE group or large-scale domestic group based in Cyprus and is in line with the Controlled Foreign Company (CFC) tax regime and the Country-by-Country Reporting (CbCR).
Furthermore, as per December 31st, 2024, the Undertaxed Profits Rule (UTPR) also applies to MNE groups that have low-tax income in jurisdictions where a top-up tax has not been collected through IIR and secures the overall tax rate of 15% to MNE group or large-scale domestic group based in Cyprus.
Finally, the law inserts new compliance requirements.