Cyprus has opened a public consultation on changes to its minimum tax rules for large multinational and domestic business groups, with the proposed amendments aimed at bringing national legislation fully into line with EU and international requirements.

The consultation, which remains open for comments until September 5, 2026, concerns amendments to the law implementing the global minimum tax framework known as Pillar Two.

The changes follow observations from the European Commission during its review of how Cyprus has incorporated the relevant EU rules into national law.

The legislation implements the EU directive on ensuring a global minimum level of taxation for multinational enterprises and large domestic groups, as amended by a further EU directive adopted on December 14, 2023.

At its simplest, the Pillar Two system requires large multinational and domestic groups with annual revenue of more than €750 million to face a minimum effective tax rate of 15 per cent.

The aim is to prevent large companies from reducing their overall tax bills by shifting profits to countries or territories where tax rates are very low or zero.

The proposed Cypriot changes would also introduce a qualified domestic minimum top-up tax, known as QDMTT, with effect from January 1, 2026.

This mechanism is important because it allows Cyprus to collect any additional tax needed to bring the effective tax rate of qualifying businesses operating in the country up to the 15 per cent minimum, rather than leaving that additional tax to be collected elsewhere.

The proposed domestic top-up tax would apply to qualifying entities belonging to multinational groups or large domestic groups that are based in Cyprus.

It would also cover certain joint ventures and companies linked to joint ventures, as well as certain partly owned entities based in Cyprus.

Excluded entities would remain outside the scope of the domestic top-up tax, while investment entities and insurance investment entities would also be excluded.

The proposed rules would give the Cyprus domestic top-up tax priority over other parts of the international minimum tax system, meaning it would generally be applied before rules that can require a parent company or another group entity to pay additional tax.

The legislation also contains arrangements to prevent the same income from being effectively taxed twice.

Where a Cyprus-based parent company or one of its group entities has already paid a qualifying domestic top-up tax in Cyprus or another jurisdiction, any additional tax due from the parent under the wider international rules would be reduced by that amount, potentially to zero.

The bill also allows companies within the same group in Cyprus to agree to transfer responsibility for paying the domestic top-up tax from one group entity to another.

Such a transfer could be made in full or in part, provided the relevant application is submitted and the receiving company agrees to take on the obligation.

If the receiving company subsequently fails to pay the tax within the required deadline, the liability would return to the company that originally owed it.

The amendments also set out how the additional tax should be calculated for joint ventures, partly owned entities and other structures, while providing specific rules for companies whose accounts use different accounting standards or currencies.

Where all relevant Cyprus-based group entities prepare their financial statements under International Financial Reporting Standards and are required to use those accounts under company or tax law, or where those accounts are independently audited, those accounts can be used for calculating the domestic top-up tax.

Where those conditions are not met, or where the financial year differs from that used by the multinational group’s consolidated accounts, the calculation would instead generally use the accounting standard applied to the group’s consolidated financial statements.

For groups whose operating currency is the euro, calculations would be made in euros.

Where the operating currency is not the euro, the reporting entity could choose, for five years, to use either the currency in which the group’s consolidated accounts are presented or the euro.

The consultation also contains detailed transitional arrangements for groups moving into the minimum tax system, including rules covering losses and deferred tax assets and liabilities from previous financial years.

Previous elections made under the wider minimum tax rules would continue to apply for the purposes of the new domestic top-up tax.

The proposed framework also provides that if a domestic top-up tax remains unpaid for four financial years after it became due, the unpaid amount would effectively be brought into the wider top-up tax calculation rather than remaining permanently recoverable by Cyprus.

The amendments go beyond the specific changes requested by the European Commission.

The government has also included additional changes designed to align Cyprus with relevant OECD guidance and recommendations, ahead of an assessment of the Republic expected in autumn 2026.

That assessment will examine whether Cyprus’ national legislation complies with the internationally agreed Pillar Two rules.

The consultation therefore represents both a response to the European Commission’s observations and an effort to ensure that Cyprus is prepared for the forthcoming international review.

For companies affected by the rules, the practical effect is that large groups operating in Cyprus will need to account for the 15 per cent minimum effective tax rate under a clearer domestic framework, with Cyprus seeking to ensure that any additional tax due locally is collected within the country.