George Panteli: Approximately 1,900 Cypriot companies subject to new 15% corporate tax rate

Some 1,900 Cypriot companies may be subject to the upcoming higher corporate tax rate as Cyprus brings its legislation in line with European and global practices, George Panteli, the Permanent Secretary of the Ministry of Finance has revealed.

He also noted that the global nature of the new rate also meant the Ministry did not foresee companies relocating from the island.

CBN had asked Panteli to comment on the upcoming increase in the corporate tax rate for certain companies, as Cyprus is set to move ahead with harmonising with the relevant EU legislation.

“According to initial calculations made by the Ministry of Finance based on data collected from the tax returns, approximately 1,900 Cypriot companies may fall within the scope of Pillar 2 rules,” Panteli said, going on to explain that the global implementation of the Global Minimum Level of Taxation meant that the Ministry did not foresee any adverse effects from possible reallocation of large domestic groups from Cyprus.

Panteli outlined the upcoming changes, noting, “The Council of the EU issued on 14 December, 2022 Directive 2022/2523 on ensuring a global minimum level of taxation of Multinational Enterprise Groups and Large Domestic Groups in the Union, also known as "Pillar 2", which is part of "two-pillar" approach within the framework of the OECD, aimed at the fiscal challenges arising from the digitisation of the global economy.”

As the Permanent Secretary noted in his comment, “This Directive regulates through the application of a series of rules the imposition of a minimum effective tax rate of 15%, on the accounting profits of entities belonging to Multinational Business Groups or large-scale domestic groups, with annual consolidated revenues exceeding €750 million.”

Based on the Community Directive, the Member States had the obligation to implement the provisions of the aforementioned directive by 31 December 2023, Panteli went on to say, adding that Cyprus had received a reasoned opinion on 23 May 2024 (INFR (2024)0020) from the European Commission pursuant to Article 258 of the Treaty on the Functioning of the European Union due to non-notification of the measures in national law, together with four other states- members, namely Portugal, Lithuania, Latvia and Spain.

“For the purposes of harmonising the national legislation with the EU Directive, a relevant bill has been drafted titled ‘The implementation of a Global Minimum Level of Taxation of Multinational Business Groups and Large-Scale Domestic Groups in the Union Law of 2024,’ which will be submitted to the House of Representatives to be voted into Law during the last quarter of 2024,” he continued.

As noted by Panteli, “The draft bill provides that the Minimum Level of Taxation of 15% shall be effective as from 31 December 2023, as provided by the acquis communautaire. According to the EU Directive, the affected companies will have to submit the first tax return in June 2026, for the financial year of 2024.”

He went on to clarify that the first inflow of revenue from the implementation of Pillar 2 “is expected in the fiscal year 2026, with a reference fiscal year of 2024.”

As noted by Panteli, “It is expected that the rules for the implementation of a global minimum level of taxation of Multinational Enterprise Groups and Large Domestic Groups in the Union, will positively affect the tax revenues of all jurisdictions, including Cyprus, as it is a framework that increases corporate taxation.”

Based on data collected from tax returns, the Finance Ministry’s initial calculations indicate that, “approximately 1,900 Cypriot companies may fall within the scope of Pillar 2 rules,” the Permanent Secretary said.

As Panteli pointed out, “Due to the global dimension of the rules because of the cross-border presence of multinational groups, the rules of the European Directive were designed in such a way that they are aligned and coexist with the global rules developed by the OECD for Pillar 2 and will be implemented globally.”

“In 2021,” he went on to say, “138 jurisdictions members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) - representing over 90% of global GDP -signed up to the implementation of the new rules.”

“Therefore,” Panteli concluded, “due to the global implementation of the Global Minimum Level of Taxation, we do not foresee any adverse effects from possible reallocation of large domestic groups from Cyprus.”

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