Dec 16, 2022

EU minimum tax rate 15% from 1 January 2024

EU minimum tax rate 15% from 1 January 2024

The Council of the European Union issued a press release on 16th December 2022 confirming the adoption of EU Minimum Tax Directive on ensuring a global minimum level of taxation for multinational enterprise groups (MNEs) and large-scale domestic groups in the European Union (Pillar Two model rules), resulting with the imposition of the corporate tax rate of 15%, effective as of 1st January 2024.

The announcement published on 16th December 2022 by the Ministry of Finance of the Republic of Cyprus states the following:

  • In line with the global rules adopted by the Organisation for Economic Co-operation and Development (OECD) and the leaders of the G20 countries in October 2021, the EU Minimum Tax Directive focuses on addressing the tax challenges arising from digitalization and Base Erosion and Profit Shifting (BEPS).
  • The minimum corporate tax rate of 15% on corporate profits will affect the MNEs or large-scale domestic groups based in the Member States of the European Union (EU Member States), as well as the affiliated entities established in third country jurisdictions, maintaining annual consolidated revenues of more than €750M.
  • The imposition of the effective corporate tax rate of 15% will be carried out through two main mechanisms:
    • the Income Inclusion Rule (IIR) ensures that an ultimate parent entity that is located in the EU Member States is subject to the top-up tax (the ‘IIR top-up tax’) for the fiscal year in respect of its low-taxed constituent entities that are located in another jurisdiction;
    • the Undertaxed Payments Rule (UTPR), should act as a backstop to the IIR through a reallocation of any residual amount of top-up tax in cases where the entire amount of top up tax relating to low-taxed entities could not be collected by parent entities, through the application of the IIR.
  • This Directive also provides for a de minimis exclusion for MNEs or large-scale domestic groups that have an average revenue of less than €10M and an average qualifying income or loss of less than €1M in a jurisdiction.
  • EU Member States have a deadline to transpose the laws, regulations and administrative provisions in order to comply with the provisions of this EU Directive by 31st December 2023 at the latest.

The Ministry of Finance of the Republic of Cyprus will proceed with the preparation of the relevant corporate tax legislation and at the same time will examine measures to mitigate any negative effects that may arise on the Cyprus economy.

For more information, please contact us via email at [email protected]

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