From January 1, 2024, the European Commission has enforced a minimum corporate tax rate of 15% for multinational companies with annual revenues exceeding €750 million.
However, implementation of this measure in Cyprus and some other countries is expected to be delayed by a few months as the Ministry of Finance’s draft law undergoes legal scrutiny.
The draft law is scheduled to be submitted to the Parliament in January or early February, but the delay is not expected to cause any issues with European authorities as the increase in corporate tax for these specific companies is anticipated to take effect by the end of 2024.
This legislation, which has retroactive impact, will calculate the new tax rate for these multinational companies from the beginning of the current year. It applies to all large groups, both domestic and international, with a parent or subsidiary company in an EU member state.
The aim of the new rules is to bring alignment with the European Directive and ensure a global minimum level of taxation for multinational business groups and large-scale domestic groups in the EU. While most of the legislation will be implemented this year, Article 12, which addresses the option for implementing a designated domestic tax, will take effect on January 1, 2025.
The decision to impose a minimum corporate tax of 15% on multinational companies with an annual turnover of €750 million was made by EU leaders in December 2022. The EU argues that this minimum effective taxation formalizes the application of the EU’s “Pillar 2” rules, which are part of the global agreement on international tax reform approved in 2021.
The regulations, particularly Pillar 2, are designed to reduce incentives for businesses to shift profits to low-tax jurisdictions. However, some European countries, including Spain and Poland, have yet to adopt these regulations, possibly due to upcoming national elections.
Certain EU member states also have reservations about the impact of the law. The United States and China also object to increased taxation on multinational companies.