Important Developments for Cyprus and the Decision on the Global Minimum Corporate Tax of 15%

The European Union and its member states, including Cyprus, are facing significant dilemmas following the decision of the U.S. Congress not to agree with the OECD’s proposal to implement a global minimum corporate tax of 15%. This decision, which contradicts the G7 agreement made in June 2021, raises concerns for countries with low corporate tax rates, such as Cyprus.

In Cyprus, business organizations such as OEB and CCCI have already expressed objections to the impending increase in the minimum corporate tax. These organizations are requesting the government to implement compensatory measures to protect businesses, alongside the increase in corporate tax, as part of the upcoming tax reform.

Additionally, the European Commission has warned Cyprus that if it does not incorporate into its national legislation the directive for the implementation of the global minimum tax rate on multinational and large domestic companies, sanctions will be imposed.

These developments may significantly impact the business environment in Cyprus. The Cypriot government is closely monitoring discussions and international reactions and is expected to provide further guidance as changes in tax policies progress.

Background

The global minimum corporate tax of 15% emerged as part of the OECD’s efforts to combat tax evasion and aggressive tax avoidance by large multinational companies. This initiative began through the OECD’s Base Erosion and Profit Shifting (BEPS) project, aimed at preventing the shifting of profits to countries with very low or zero tax rates.

The agreement for the imposition of a minimum corporate tax was reached in June 2021 by the G7 countries and was subsequently endorsed by the G20 countries. The goal of the agreement is to ensure that multinational companies pay taxes where they generate profits, limiting the practice of profit shifting to low-tax jurisdictions.

We encourage you to stay informed about these developments and consider any potential impacts on your business.

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