On 20 October 2026, the Cyprus Ministry of Finance published the Draft Budgetary Plan (DBP) for 2027, setting out the government’s fiscal strategy and tax policy priorities for the upcoming year. The plan, submitted in accordance with EU fiscal surveillance requirements under Regulation (EU) No 473/2013, outlines a series of tax reforms aimed at enhancing revenue collection, improving tax compliance, and aligning with OECD BEPS Pillar Two standards. The DBP 2027 projects a general government surplus of 2.1% of GDP and a debt-to-GDP ratio declining to 72.5%, underpinned by measures including the introduction of a digital services tax, adjustments to corporate income tax incentives, and enhanced VAT compliance mechanisms. The document also references the implementation of the global minimum tax directive (EU 2022/2523) effective from 1 January 2027, which will apply to multinational enterprises with revenues exceeding €750 million. Stakeholders are invited to submit comments during the consultation period ending 15 November 2026, after which the final budget will be presented to parliament for approval before the end of the year.
Key Takeaways
- Global Minimum Tax Implementation: The DBP confirms Cyprus will transpose the EU Directive on Pillar Two into national law by 31 December 2026, introducing a 15% effective minimum tax for large multinational groups. This includes a qualified domestic minimum top-up tax (QDMTT) and an income inclusion rule (IIR), with detailed guidance expected from the Tax Department by Q1 2027. The measure ensures Cyprus remains compliant with the OECD/G20 Inclusive Framework while protecting its tax base from profit shifting.
- Digital Services Tax and VAT Modernization: A new 3% digital services tax on revenues derived from digital advertising, online marketplaces, and user data sales will take effect from 1 July 2027. Simultaneously, the plan mandates real-time VAT reporting via the MyTax portal for all businesses with annual turnover above €200,000, phasing in mandatory e-invoicing for B2B transactions by 2028. These steps aim to reduce the VAT gap and modernize tax administration in line with the EU’s VAT in the Digital Age (ViDA) initiative.
- Corporate Tax Incentive Rationalization: The government proposes to phase out certain IP box regime benefits not aligned with OECD nexus approach, while introducing a new R&D super-deduction of 150% for qualifying expenditures. Capital allowance rates for green investments will be accelerated to 100% first-year deduction, supporting the national energy transition plan. These changes seek to align incentives with substantive economic activity and environmental objectives.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement