A bill was tabled in parliament to comply with the European Union’s directive on imposing a minimum 15% corporate tax rate, just weeks after being referred to the European Court of Justice for failing to harmonise with the measure.
The legislation, which should have been approved by the end of 2023, will apply retroactively from December 31, 2023.
Officials believe this retroactive application, along with specific provisions in the bill, may help Cyprus avoid fines from the EU court.
Under the new law, shipping management companies will be subject to the 15% minimum tax rate, despite exemptions provided in another EU directive.
Approximately 60 companies in Cyprus are expected to be affected by this tax.
The government proposes that affected companies submit their first tax declaration in June 2026 for the 2024 fiscal year.
The bill introduces mandatory Income Inclusion Rule (IIR) for fiscal years beginning from late 2023, and the Undertaxed Payments Rule (UTPR) for fiscal years starting from December 31, 2024.
A national supplementary tax will be implemented for fiscal years beginning December 31, 2024.
This supplementary tax will be imposed and applied in national law in proportion to the provisions of the specific EU directive.
The decision to apply the national supplementary tax from 2025 rather than 2024 aims to give affected Cypriot companies time to adapt to the changing international environment.
This move seeks to prevent potentially harmful relocations from Cyprus to destinations offering more tax benefits, particularly in relation to Pillar 2.
While most EU states will implement the national supplementary tax this year, Cyprus assessed that applying it from 2024 could potentially alter the behaviour of affected companies.
This could impact both the annual flow of significant tax revenues from the established national corporate tax rate and the broader economy through the relocation of companies and their employees.
Officials judged that the revenue lost from this policy decision is significantly less than the potential permanent impact of lost tax revenue and economic contraction that could result from earlier implementation.
