Cyprus Proposes a Qualified Domestic Minimum Top-up Tax from 2026

Cyprus has tabled a Pillar Two amendment bill that would preserve its existing domestic minimum top-up tax for 2025 and introduce a separate qualified domestic minimum top-up tax from 2026. The proposal changes the domestic charging provisions, specifies the treatment of foreign owner-level taxes, and introduces detailed accounting, currency and transition rules. It also makes reporting amendments and corrections that would apply to earlier financial years.

The Ensuring a Global Minimum Level of Taxation of Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union (Amendment) Bill 2026 was tabled on 8 October 2026 under parliamentary file 23.01.067.166-2026. It would amend Law 151(I)/2024. 

The existing domestic tax and the qualified tax definition

The distinction between the existing Cyprus domestic minimum top-up tax (CyDMTT) and a qualified domestic minimum top-up tax (QDMTT) is essential. Article 2 of the existing law already defines a qualified domestic top-up tax and excludes the allocation rules in Article 25(1), (3), (4) and (5). Article 25(3) is the provision allocating controlled foreign company (CFC) taxes from an owner to the underlying constituent entity. A restriction on CFC tax pushdown therefore already appears in the legislation.

However, Article 2 separately defines the Cyprus domestic top-up tax imposed under Article 12. That definition expressly applies Articles 25 and 28 to constituent entities and joint ventures. For the allocations in Article 25(1), (3), (4) and (5), it uses the covered tax that would have been payable if the Cyprus domestic top-up tax had not applied. Article 12 charges this separately defined CyDMTT.

The Ministry of Finance report accompanying the bill describes the existing CyDMTT as a standalone national corporate tax. It records concerns raised by the European Commission and the OECD about differences between that charge and the requirements for a QDMTT. Its proposed response is to retain the existing charge for 2025 and apply a fully aligned qualified charge from 2026.

Accordingly, the amendment should be understood as aligning the operative Cyprus domestic charge with the qualified-tax framework. he practical comparison is between the Article 12 CyDMTT and the proposed Article 12A charge.

A separate charging provision

Clause 4 would insert Article 12A. It expressly covers Cyprus constituent entities, joint ventures and joint venture subsidiaries, and minority-owned constituent entities. Article 4(3) excluded entities would remain outside the charge, and Article 12A would also exclude investment entities and insurance investment entities. The existing group revenue threshold in Article 4 is unchanged.

The calculation would follow Article 28, but without deducting domestic top-up tax in computing the QDMTT itself. Joint ventures and their subsidiaries would have separate effective tax rate and top-up tax calculations under Article 37. Minority-owned entities would be treated under Article 32. 

The QDMTT would apply before a qualified income inclusion rule (IIR) or undertaxed profits rule (UTPR). The de minimis exclusion in Article 31 and safe harbour provisions in Article 33 could apply by analogy, subject to their conditions. This preserves relief within the domestic calculation without granting a general exemption merely because a group has obtained relief from an IIR or UTPR.

Foreign CFC taxes and other tax allocations

Proposed Article 12A(5)(a) expressly prevents a covered tax imposed by another jurisdiction under a CFC regime from being allocated to a Cyprus constituent entity for the new domestic charge. It gives the Cyprus charging provision its own clear foreign CFC tax exclusion.

Related provisions would exclude the main entity tax allocated to a Cyprus permanent establishment. Owner-level taxes on a Cyprus hybrid entity would count only where imposed in Cyprus and relating to that hybrid entity’s income. The distribution provision refers to Cyprus withholding taxes. These modifications require a separate review of the taxes included in the domestic effective tax rate, even where an IIR calculation allocates additional foreign taxes to the same income.

For example, assume Cyprus GloBE income of EUR 10 million and Cyprus adjusted covered taxes of EUR 1 million. Assume a foreign parent also incurs EUR 500,000 of CFC tax on that income. With no substance-based income exclusion, safe harbour or other adjustment, the proposed QDMTT would use a 10% effective tax rate and produce EUR 500,000 of domestic top-up tax. The foreign CFC tax would not increase the QDMTT numerator.

If that CFC tax were fully allocable under the existing Article 12 CyDMTT rules, the same simplified facts could produce a 15% effective tax rate and no CyDMTT. 

Accounting standards and calculation currency

Article 12A(5)(g) would require the use of EU-endorsed IFRS where all relevant Cyprus constituent entities, joint ventures and joint venture subsidiaries keep accounts under that standard and those accounts are either required under national company or tax law or independently audited. The provision is framed as a calculation rule when its conditions are met, rather than a free choice of accounting standard.

The calculation would revert to the ultimate parent entity’s consolidated accounting standard under Article 16(1) and (2) if the conditions are not met by all relevant entities. The same fallback would apply where any entity’s accounting period differs from the period used for that entity in preparing the group’s consolidated financial statements. Groups would therefore need to establish the accounting basis across their Cyprus population before reusing consolidation data for the QDMTT.

Where every Cyprus member has the euro as its functional currency, all QDMTT calculations would be in euros. If any Cyprus member has a different functional currency, the filing entity could make a five-year election to calculate in either euros or the presentation currency of the group’s consolidated financial statements. The election would renew automatically unless revoked at the end of the five-year period.