Cyprus is facing a complex tax dilemma over the implementation of Pillar Two, as it seeks to comply with European Commission requirements without making the country less attractive to major multinational companies, particularly those with US interests.
Pillar Two sets a minimum effective tax rate of 15% for multinational and large domestic groups with annual revenues of at least €750 million. Cyprus incorporated the framework into its legislation in December 2024, introducing a domestic top-up tax from 2025. However, the European Commission found that the provisions did not fully meet EU requirements and called for the implementation of a Qualified Domestic Minimum Top-up Tax (QDMTT), allowing Cyprus to collect the difference when the effective tax rate falls below 15%.
A new amendment bill provides for the QDMTT to take effect from January 1, 2027, and includes additional changes based on guidelines from the Organisation for Economic Co-operation and Development (OECD), ahead of an assessment of Cyprus in autumn 2027.
Pillar Two is part of the OECD’s international tax reform for large multinational companies, aimed at limiting the shifting of profits to countries with very low tax rates.
Professional bodies warn that stricter taxation could prompt US multinationals to move their operations to countries such as Malta, Estonia, Latvia and Lithuania, which have secured a transitional exemption from certain rules until 2029. According to the same sources, US companies contribute around €140 million a year in tax revenue.
At the same time, Finance Ministry officials say there is limited scope to deviate from Brussels’ requirements and that failure to comply could lead to EU proceedings against Cyprus.
The debate has also been complicated by questions over the government’s initial estimates. Parliament was initially told that 60 companies would be affected, while the number was later reported to have risen to 1,900.
Source: Fileleftheros
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