Introduction of Global Minimum Tax

Introduction of Global Minimum Tax

On December 12, 2024, the House of Representatives of Cyprus approved legislation establishing a 15% global minimum corporate tax rate for multinational enterprises (MNEs) and large domestic groups with consolidated annual revenues exceeding €750 million. This law is part of the OECD’s Pillar Two initiative and will come into effect for financial years starting on or after January 1, 2024.

Key Provisions of the New Law:

• Income Inclusion Rule (IIR): This rule requires MNEs to pay a minimum tax on their income, effective for financial years beginning on January 1, 2024.
• Undertaxed Profits Rule (UTPR): This rule will apply to financial years starting on or after December 31, 2024, ensuring that MNEs with low-tax income in jurisdictions without a top-up tax will be subject to additional taxation.
• Domestic Minimum Top-Up Tax (DMTT): Effective from January 1, 2025, this provision imposes a top-up tax on low-tax income of entities within MNE groups located in Cyprus.

Impact on Business

The introduction of the global minimum tax represents a crucial step in aligning Cyprus with international tax standards. Here’s how it may affect businesses:

1. Increased Tax Burden: MNEs that previously benefitted from the lower corporate tax rate of 12.5% may face higher tax liabilities. This could necessitate a reevaluation of financial strategies and business plans.
2. Competitive Positioning: While the new tax rate may deter some businesses from operating in Cyprus, the government maintains that the island will remain an attractive destination due to its strategic location and developed infrastructure.
3. Compliance Requirements: Companies will need to adapt to new reporting obligations under the IIR and UTPR, which may require additional resources for compliance and reporting.
4. Long-Term Planning: Businesses must consider how these changes will affect their operations and profitability while planning for potential restructuring or relocation if necessary.
5. Alignment with International Standards: The new legislation helps improve Cyprus’s image as a reliable business hub by ensuring compliance with global tax standards.

As Cyprus adapts to these changes in international tax policy, businesses must stay informed about how these developments can impact their operations and obligations. The introduction of the global minimum tax opens new avenues for business but also requires careful navigation through evolving regulations.At Hadjivangeli & Partners, we are committed to assisting businesses in understanding these changes and optimizing their tax strategies. For more information or guidance on how this legislation impacts your operations, please contact us today!