TaxLegi 1.10.2023

  • Cyprus issues draft legislative proposal on Pillar Two global minimum tax

    • The draft legislative proposal is aimed at helping Cyprus implement Pillar Two global minimum tax rules.
    • Comments on the draft proposal may be submitted through 31 October 2023.
    • The law will be effective for accounting periods beginning on or after 31 December 2023 in relation to the Income Inclusion Rule and for accounting periods beginning on or after 31 December 2024 in relation to the Undertaxed Profits Rule.



    On 3 October 2023, the Ministry of Finance of Cyprus issued a draft legislative proposal entitled The Safeguarding of a Global Minimum Level of Taxation of Multinational Enterprise Groups and Large-Scale Domestic Groups in the Union Law of 2023. The legislation is aimed at harmonizing with Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the European Union (the Directive), also known as Pillar Two Directive. (For background, see EY Global Tax Alert, EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules, dated 15 December 2022.)

    The draft proposal is open for consultation until the close of business on Tuesday, 31 October 2023. (Please refer to the announcement made by the Ministry of Finance.)

    Detailed discussion

    The framework of the proposed bill implements a series of rules to regulate the imposition of minimum effective taxation for large multinational and domestic groups with annual consolidated revenues of €750 million or more. More specifically, it sets forth two interlocked rules — the Income Inclusion Rule (IIR) and the Undertaxed Profit Rule (UTPR) -through which an additional amount of tax called a "top-up tax" should be collected each time the effective tax rate due on the income of an MNE or domestic group in a given jurisdiction is below 15%.

    The draft bill under consultation incorporates all the provisions of the Directive and has been enriched with certain provisions from OECD administrative guidance, as well as provisions regulating administrative matters, to enhance the interpretation of the Cyprus Pillar Two law.

    The Cyprus government plans to bring this legislative proposal forward by 31 December 2023, as required by the Directive. More specifically, the law be effective for accounting periods beginning on or after 31 December 2023 in relation to the IIR and for accounting periods beginning on or after 31 December 2024 in relation to the UTPR.

    In addition, the draft proposal includes a qualified domestic minimum top-up tax (QDMTT) to be effective as of 1 January 2025. It is expected that for the purpose of calculating the QDMTT, Cyprus will allow for a push-down of foreign taxes as provided in Article 24 of the Directive and Article 4.3.2 of the OECD/Inclusive Framework Model Rules.

    Lastly, the draft law provides that there will be no top-up tax for entities that meet the requirements of an "acceptable international safe harbour agreement" that is determined by a decree issued by the Minister of Finance.

    Next steps

    EY Cyprus will continue its extensive engagement with the Ministry of Finance on Pillar Two implementation. Also, EY Cyprus is available to assist businesses in evaluating their Pillar Two impact and in their efforts to achieve compliance with the new rules.


    For additional information with respect to this Alert, please contact the following:

    EY Cyprus Advisory Services Limited

    ·    Petros Krasaris |

    ·    Eleni Papachristodoulou |

  • Cyprus | Update of EU list of non-cooperative jurisdictions may trigger withholding tax and other implications

    Executive summary

    On 17 October 2023, at the Economic and Financial Affairs Council, the European Union (EU) Finance Ministers approved the revised list of non-cooperative jurisdictions (EU List). Specifically, three jurisdictions have been added to Annex I of the list, i.e., Antigua and Barbuda, Belize and Seychelles. At the same time, three jurisdictions were removed from the list: British Virgin Islands, Costa Rica and Marshall Islands. The list becomes official upon publication in the Official Journal.

    The EU List is relevant for tax purposes since as of 31 December 2022, Cyprus imposes withholding tax on dividend, interest and royalty payments made to entities that are registered or resident in a jurisdiction that is included in Annex I of the EU List. In addition, the EU List is relevant for MDR and Public CbCR purposes since under certain conditions, payments to these jurisdictions may create a reporting obligation.

    Detailed discussion

    Background on EU listing process

    The EU started working on the list of non-cooperative jurisdictions for tax purposes in 2016 and published its list of non-cooperative jurisdictions for the first time on 5 December 2017, which was comprised of two annexes. Annex I includes jurisdictions that fail to meet the EU’s criteria on tax transparency, fair taxation and implementation of base erosion and profit shifting (BEPS) measures by the required deadline. Annex II includes jurisdictions that have made sufficient commitments to reform their tax policies but remain subject to close monitoring while executing their commitments. Once a jurisdiction has executed all of its commitments, it is removed from Annex II.

    On 17 October 2023, the EU Finance Ministers updated the EU List and included three new jurisdictions in Annex I. As per the latest update, Antigua and Barbuda, Belize and Seychelles have been added and together with American Samoa, Anguilla, Bahamas, Fiji, Guam, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands and Vanuatu, represent the 16 jurisdictions that are currently on the EU List (Annex I).

    The next update of the bi-annual review of the EU List is expected in February 2024.

    Withholding tax on payments made to non-cooperative jurisdictions

    In an effort to be in line with the proposals set by the EU regarding the application of defensive measures, Cyprus has opted to introduce the imposition of withholding taxes on outbound payments of dividends, interest and royalties made to companies which are tax resident or registered in jurisdictions included in Annex I of the EU List.

    The relevant provisions have been transposed into the Cypriot Income Tax Law and Special Contribution to the Defence Law and are effective as of 31 December 2022.

    As of today, the Cypriot Tax Department (Tax Department) has not issued any official guidance to taxpayers with regards to the practical application of withholding taxes in cases where an outbound payment of dividends, interest, or royalties is made to a company resident or registered in a non-cooperative jurisdiction.

    We understand that the Tax Department is considering the details on the practical application of the new withholding tax rules and is expected to provide clarifications and guidance to taxpayers in the following months on matters including but not limited to:

    ·      Application of withholding taxes and the determination as to which jurisdictions are included on the EU List at a specific point in time, covering additions to and removals from the EU List during the tax year.

    ·      Whether the determination of the tax point for withholding purposes will be made on a “cash basis” or “accrual basis.”

    ·      Applicability of a deemed dividend distribution provision in cases where corporate shareholders have been tax residents in jurisdictions included on the EU List.

    It should be highlighted that in cases where withholding taxes are applicable and an Agreement for the Avoidance of Double Taxation between Cyprus and the non-cooperative jurisdiction is in place (which currently is the case only for Russia and Seychelles), such Agreement is expected to supersede the provisions of the domestic tax laws. Consequently, the withholding tax rates included in the Double Tax Treaty should generally apply on the relevant type of income (dividends, interest, royalties) subject to withholding tax.

    Cypriot DAC6/MDR implications 

    The revision of the EU List may have the potential reportability implications for Cypriot DAC6/MDR purposes, especially with regards to hallmarks C.1.b.(ii) and D.1 of the Cypriot DAC6/MDR Law (Law 41(I)/2021). It should be noted that such hallmarks are not subject to the Main Benefit Test additional criterion.

    Hallmark C.1.b.(ii): Cross-border arrangements that involve intragroup deductible cross-border payments to any blacklisted jurisdictions may give rise to DAC6/MDR disclosure under this hallmark. Cypriot companies which participate in such arrangements should assess the potential reporting obligations under the Cypriot DAC6/MDR legislation.

    Hallmark D.1: Cross-border arrangements involving the use of a jurisdiction included in the EU List may fall within the scope of the said hallmark. It should therefore be examined whether the use of such jurisdictions has the effect of undermining reporting under the OECD CRS or other equivalent exchange of information agreements.

    Public CbCR considerations

    The EU lists (Annex I and Annex II) also have consequences for public-Country-by-Country Reporting. A jurisdiction's listing by the Code of Conduct may trigger the requirement to publish disaggregated information for that jurisdiction.

    What does it mean for taxpayers 

    The revision of the EU List has various implications for taxpayers with activities in or transactions with listed jurisdictions. Besides Cyprus, other EY Member States have introduced a growing number of defensive measures tied to the EU List. Taxpayers are therefore encouraged to review their current arrangements and assess whether these are impacted by the defensive measures adopted by Cyprus and other EU Member States. 


    EY Cyprus remains at your disposal for any questions and/or clarifications regarding the above matters. Please feel free to contact us as follows:

    EY Cyprus Advisory Services Limited

  • Provision of free goods as part of another main supply- VAT cost can be avoided per recent CJEU decision

    On 5th of October 2023, the Court of Justice of the European Union (‘CJEU’) issued its decision in the Portuguese case C-505/2022 ( Deco Proteste – Editores, Lda). The judgment clarifies that the provision of a free item upon subscription to a magazine/newspaper is an ‘incidental supply’ to the principal service of delivering magazines and not a free supply of goods for VAT purposes.

    Deco Proteste-Editores (DPE), a Portuguese publisher, offered complimentary tablets and smartphones as a welcome gift  to new customers who subscribed to their magazines. The free gods even though minimal in value were not classified as ‘gifts of small value’  under portuguese VAT legislation and therefore the questioned arose as to whether output VAT was due on those ‘free supplies’. 

    The CJEU ruled that the provision of a welcome gift as a reward for subscribing to a magazine is considered to be  incidental supply to the main principal service, which is the delivery of magazines. This is because the sole purpose of the provision of the goods was to attract new subscribers and the item in question had no distinct purpose for the point of view of the average consumer.

    Therefore the items given for free should not be considered as supply of goods ‘free of charge’ under Article 16(1)(a) of the EU VAT Directive but shall be part of the supply of magazines.

    This decision is landmark for businesses granting free goods as part of a commercial package or promotional campaign to attract customers. The decision makes clear that those supplies can form part of the main principal transaction and not be regarded as a seperate ‘free transfer of goods’ supply for VAT purposes (i.e.subject to potential output self-charging VAT provisions and/or input VAT recoverability restrictions).

    Businesses granting such goods and/or supplying goods in this similar context should therefore examine whether those supplies can fall under this CJEU verdict in order to minimise potential VAT leakages and/or increase their input VAT recoverability. The businesses that have also suffered VAT costs on such items should examine the possibility of VAT recovery/ savings


    For additional information, please contact the following:

    • George Liasis Partner, Head of Indirect Tax Services
    • Georgios Pitsillis Director, Indirect Tax Services
    • Maria Raspa Director, Indirect Tax Services
    • Elpida Papachristodoulou Director, Indirect Tax Services
    • Simos Simou Senior Manager, Indirect Tax, Controversy
    • Iacovos Kefalas Senior Manager, Indirect Tax Services
  • EU | Compliance obligations for EU CBAM

    • The current transitional period for the Carbon Border Adjustment Mechanism (CBAM) introduces several new compliance and reporting requirements for importers into the European Union (EU).
    • In addition to quarterly, retrospective reporting obligations, importers may experience additional compliance obligations when filing import declarations. These requirements are not consistently applied throughout all EU Member States.
    • Non-compliance with CBAM obligations may result in significant penalties, and some EU Member States are now implementing their own domestic penalty regimes in addition to the EU mandated penalty regime. Importers should familiarize themselves with all country specific CBAM compliance obligations to prevent or mitigate these penalties.


    On 1 October 2023, the transitional period of the Carbon Border Adjustment Mechanism (CBAM) entered into force. During the transitional phase, importers, their representatives and brokers and certain other parties in the supply chain are required to adhere to several compliance and reporting requirements that may vary depending on the Member State of importation.

    This Alert summarizes the CBAM compliance and reporting obligations that we are aware of (to date).

    Detailed discussion


    An additional reporting requirement is imposed for imports of certain commodities into the EU as of 1 October 2023. The commodities are CN-code1 based and include products in the categories of iron, steel, aluminum, cement, fertilizer, hydrogen and electricity, as well as some precursors and downstream products (pipes, tubes, bolts, nuts, screws, etc.). The reporting obligation will apply during the CBAM transitional phase, from 1 October 2023 to 31 December 2025.

    As of 1 January 2026, importers of CBAM goods are also required to buy CBAM certificates to offset emissions embedded in the goods imported.

    Quarterly reporting obligations

    During the CBAM transitional phase, at the end of the month following each quarter, starting with Q4 2023, the importer or its indirect customs representative are required to submit a CBAM report. Details on the elements to be included in this CBAM report are outlined in Annex I to the CBAM Implementing Regulation.2 These include commodity codes for the goods imported (only those subject to CBAM), country of origin, quantity (net mass and/or units) and emissions (total, direct and indirect). For the first three quarterly reports, meaning Q4 2023 through Q2 2024, the declarant is permitted to use default values to report on emissions. Default values are to be published by the European Commission and reflect average emissions.

    After the first three quarterly reports, the declarant is only permitted to use default values for up to 20% of imports (complex goods). The remaining 80% of emissions data would have to be reported based on actual values, to be collected from suppliers and/or manufacturers. In this light, note that the supplier to the importer may not always be the manufacturer, potentially causing information requests to be circulated among a significant number of parties. Furthermore, not all manufacturers may be willing or able to provide this information — details around production processes may be sensitive or confidential. If manufacturers are willing and able to provide the data, they may not be willing to provide the data without an option to recharge costs associated with the collection of the data or generation of the calculations. Among those costs are authorized validation costs, applicable where validation of the emissions calculation is mandatory (2026).

    Importers that are expecting or experiencing delays in obtaining the relevant emissions data from suppliers or manufacturers should at least have a data collection program designed and executed to evidence the duty of care taken to collect relevant data. This may not prevent, but could mitigate, penalties imposed for noncompliance (see below).

    Import declaration requirements

    Even though the CBAM Implementing Regulation does not specifically refer to further compliance and reporting obligations, these may be required on a country-by-country basis.

    Penalties for noncompliance

    The CBAM Implementing Regulation also includes a penalty regime for noncompliance, including cases where the reporting declarant has not taken the necessary steps to comply with the obligation to submit a CBAM report, or where a CBAM report is filed incorrectly or is incomplete. The penalty amounts as communicated in the CBAM Implementing Regulation are between €10 and €50 per ton of unreported emissions, subject to indexation. Higher penalties may be applied when more than two incomplete or incorrect reports have been submitted in a row or the duration of the failure to report exceeds six months.

    In addition to this overarching penalty regime, some Member States are implementing their own domestic penalty regimes. For example, the Netherlands recently passed a bill outlining that the (maximum) penalty amounts instead are up to €450k or 10% of a declarant's annual turnover (in the event the annual turnover exceeds €4.5m) — per omission. Cyprus has not yet announced domestic penalty amounts.

    While the validity of having two penalty regimes (an EU and a domestic regime) may be subject to debate, CBAM importers are nonetheless cautioned that Member States may impose significant penalties for noncompliance with CBAM legislation.

    Actions for businesses

    In light of these developments, businesses importing goods into Cyprus should consider:

    ·    Identifying whether any imports into Cyprus require quarterly CBAM reporting

    ·    Preparing for quarterly CBAM reporting in a timely manner and ensuring that an emissions data collection program is designed and executed?

    The above is based on our interpretation of current tax legislation and case law published to date. This Indirect Tax Alert provides general information with no pretension of completeness, and it should not be considered tax advice.

    For additional information with respect to this Alert, please contact the following:

    EY Cyprus Contacts

    ·    George Liasis, Partner – Indirect Taxes |

    ·    Simos Simou, Senior Manager – In charge of Green Taxes |

    ·    Iacovos Kefalas, Senior Manager |

    ·    Pantelis Charalambides, Assistant Manager |

    ·    Ioanna Drousioti, Senior Associate |

    ·    Anthony Charalambous, Associate |


    1 CN is the abbreviation for "combined nomenclature," an eight-digit product classification system used in export declarations and statistical declarations for trade in the European Community. CN codes are published in the Official Journal of the European Union.

    2 Commission Implementing Regulation (EU) 2023/1773 of 17 August 2023 laying down the rules for the application of Regulation (EU) 2023/956 of the European Parliament and of the Council as regards reporting obligations for the purposes of the carbon border adjustment mechanism during the transitional period.

  • Extension of the deadline for filing an objection and imposition of additional tax on personal income tax assessments

    On October 17, 2023, the Tax Department announced that due to delays in the receipt of the Notice of Tax Assessments (form T.D.8) by the individuals, as a result of mass issuance of tax assessments, the Commissioner of Taxation in the context of fair administration decided that: 

    1)     The right to submit an objection is extended until December 31, 2023, for Notice of Tax Assessments issued within the year 2023 and with an objection submission deadline up until December 31, 2023.

    2)     No additional 5% tax will be imposed on tax assessments issued within 2023 for which (i) tax is due for payment and (ii) have a payment date up to and including November 30, 2023, provided that the due tax will be settled before December 31, 2023.


    For additional information, please contact our team: