A Review of Cyprus’s Draft Pillar Two Law

Overview

On October 3, 2023, the Cyprus Ministry of Finance issued the ‘Ensuring a Global Minimum Level of Taxation of Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union Law of 2023’ (the ‘draft law) to implement the Pillar Two GloBE rules/EU Minimum Tax Directive. It is open for consultation until October 31, 2023.

As provided in the EU Directive, the draft law includes an income inclusion rule (IIR) and an under-taxed profits rule (UTPR). 

The IIR is to apply to financial years beginning on or after December 31, 2023. The UTPR will generally apply to financial years beginning on or after December 31, 2024.

Section 12 of the draft law provides that Cyprus will apply a domestic minimum top-up tax. However, detailed provisions are not included in the draft law. Section 62 of the draft law provides that this will be effective from January 1, 2025.

The approach to Safe Harbours differs in the draft law differs from most other jurisdictions.

In particular, the applicability of safe harbours is determined by a decree of the Minister of Finance.  Section 33 of the draft law does provide that there will be no top-up tax for entities that meet the requirements of an  ‘acceptable international safe harbour agreement’.

Although applying the safe harbours by a Ministry Decree may reduce Parliamentary oversight it does significantly ease the introduction of new safe harbours.

General