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October 9, 2023

Cyprus issues draft legislative proposal on Pillar Two global minimum tax

  • The draft legislative proposal is aimed at helping Cyprus implement Pillar Two global minimum tax rules.
  • Comments on the draft proposal may be submitted through 31 October 2023.
  • The law will be effective for accounting periods beginning on or after 31 December 2023 in relation to the Income Inclusion Rule and for accounting periods beginning on or after 31 December 2024 in relation to the Undertaxed Profits Rule.


On 3 October 2023, the Ministry of Finance of Cyprus issued a draft legislative proposal entitled The Safeguarding of a Global Minimum Level of Taxation of Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union Law of 2023. The legislation is aimed at harmonizing with Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the European Union (the Directive), also known as Pillar Two Directive. (For background, see EY Global Tax Alert, EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules, dated 15 December 2022.)

The draft proposal is open for consultation until the close of business on Tuesday, 31 October 2023. (Please refer to the announcement made by the Ministry of Finance.)

Detailed discussion

The framework of the proposed bill implements a series of rules to regulate the imposition of minimum effective taxation for large multinational and domestic groups with annual consolidated revenues of €750 million or more. More specifically, it sets forth two interlocked rules — the Income Inclusion Rule (IIR) and the Undertaxed Profit Rule (UTPR) -through which an additional amount of tax called a "top-up tax" should be collected each time the effective tax rate due on the income of an MNE or domestic group in a given jurisdiction is below 15%.

The draft bill under consultation incorporates all the provisions of the Directive and has been enriched with certain provisions from OECD administrative guidance, as well as provisions regulating administrative matters, to enhance the interpretation of the Cyprus Pillar Two law.

The Cyprus government plans to bring this legislative proposal forward by 31 December 2023, as required by the Directive. More specifically, the law be effective for accounting periods beginning on or after 31 December 2023 in relation to the IIR and for accounting periods beginning on or after 31 December 2024 in relation to the UTPR.

In addition, the draft proposal includes a qualified domestic minimum top-up tax (QDMTT) to be effective as of 1 January 2025. It is expected that for the purpose of calculating the QDMTT, Cyprus will allow for a push-down of foreign taxes as provided in Article 24 of the Directive and Article 4.3.2 of the OECD/Inclusive Framework Model Rules.

Lastly, the draft law provides that there will be no top-up tax for entities that meet the requirements of an "acceptable international safe harbour agreement" that is determined by a decree issued by the Minister of Finance.

Next steps

EY Cyprus will continue its extensive engagement with the Ministry of Finance on Pillar Two implementation. Also, EY Cyprus is available to assist businesses in evaluating their Pillar Two impact and in their efforts to achieve compliance with the new rules.


For additional information with respect to this Alert, please contact the following:

EY Cyprus Advisory Services Limited

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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