The Cyprus House of Representatives has approved the transposition of the EU Directive on the 15% global minimum tax for multinational and large-scale domestic groups (Pillar 2 Directive).

The legislation sets a minimum effective tax rate of 15% for entities within multinational or large domestic groups with annual consolidated revenues exceeding €750 million. The law introduces the mandatory Income Inclusion Rule and Under Taxed Profit Rule, as well as a Cyprus-specific supplementary tax. These measures align Cyprus's national tax framework with the provisions of the EU Directive.

• Supplementary Tax Implementation: Starting in 2025, entities paying an effective tax rate below 15% will be required to pay the difference as supplementary tax.

• Tax Base Adjustments: The supplementary tax will be calculated on surplus profits, defined as total accounting profits of Cypriot entities after specific adjustments and modifications.

• Alignment with EU Obligations: The legislation fulfills Cyprus's obligation to comply with EU law, following delays that prompted the European Commission to take legal action in March 2024.

During discussions in the Finance Committee, it was noted that the new taxation rules are expected to positively impact public revenues across all jurisdictions, including Cyprus, by increasing corporate tax contributions.

Projections based on 2021–2022 data from the Tax Department estimate that approximately 1,900 entities in Cyprus will be affected. Without factoring in potential relocations or strategic adjustments by entities, the new rules are expected to boost state revenues by €200–€250 million in 2026.

The delay in adopting the directive resulted in a formal warning from the European Commission in March 2024, requiring compliance by July 23, 2024. However, further delays led to the Commission filing a lawsuit against Cyprus with the Court of Justice of the European Union.

The supplementary tax is designed to provide Cypriot entities adequate time to adjust while preventing potential relocations to jurisdictions offering greater tax benefits.