Cyprus is facing the risk of losing important American multinationals that have established operations in the country, as the implementation of Pillar 2 and, in particular, the Republic of Cyprus' choice regarding the domestic supplementary tax, create a serious competitive disadvantage.
The issue gains particular importance after the OECD and US agreement on the so-called "Side-by-Side," by which American groups are exempt from the two main mandatory taxes of Pillar 2, but not from the optional domestic supplementary taxes that states choose to apply.
Simply put, the new environment creates a situation in which an US multinational operating in Cyprus may be burdened with a tax that it will not face in other jurisdictions, including Malta and other countries within and outside the European Union. And this may act as a strong incentive to transfer activities outside Cyprus given the prescribed choice that the Ministry of Finance is going to make with a bill it has drafted for passage by parliament.
DMTT and QDMTT in the spotlight
The issue concerns the way in which Cyprus has incorporated into its national legislation the OECD and EU Pillar 2, which provides for a minimum effective tax rate of 15% for large multinational groups with annual consolidated revenues of at least €750 million.
Cyprus chose the DMTT, i.e. a domestic optional tax, two years ago instead of the QDMTT (Qualified Domestic Minimum Top-up Tax). According to our information, this choice was conscious and was made precisely because it allowed the Republic greater flexibility, which was also sufficient for the American multinationals that have a presence in the country.
However, following international developments in early 2026, this option has turned from an advantage into a problem. It is now clear that maintaining the DMTT leads to a significant loss of competitiveness compared to jurisdictions that do not apply a similar tax.
The €140 million threat
The financial stakes are particularly high. American multinationals currently operating in Cyprus pay approximately €140 million per year in corporate income tax. This amount corresponds to more than 10% of the Republic's total annual corporate tax revenue.
We understand that the abolition of the DMTT would cost approximately €20 million per year in taxation of non-US multinationals, but would keep US companies in Cyprus and, by extension, the much larger tax revenues they generate, namely €140 million.
One realizes that Cyprus risks chasing a relatively limited additional tax revenue through any DMTT and ultimately losing much more from the anticipated withdrawal of large multinationals.
Departures are already being prepared
Even more worrying is the position of the consultants that a number of large American groups have already informed that they are considering leaving the Republic and transferring activities to other jurisdictions. They are prioritizing, among others, Malta and non-EU countries that do not apply QDMTT or DMTT as alternative destinations.
The problem is not limited, however, to corporate tax revenues. A mass exodus of multinationals would mean a loss of investment, jobs, business activity and international networks, while also hurting Cyprus's efforts to attract new American investment, which is obviously the largest taxpayer by far of all other foreign investors in the country.
Precisely for this reason, the issue acquires a broader economic and political dimension, especially at a time when the Republic of Cyprus seeks to further strengthen its economic and political relations with the USA.
The choice of the Finance Minister and the disagreement of the advisors
Meanwhile, instead of abolishing the DMTT, the Ministry of Finance has committed to the EU to proceed with its conversion into a QDMTT. The relevant amendment to the legislation is being promoted following the European Commission's observations on the way to incorporate Pillar 2 into Cypriot legislation.
Here lies the heart of the dispute. The consultants argue that Cyprus had chosen DMTT and, therefore, had the possibility to abolish it. The European Commission, on the contrary, considers that Cyprus has essentially chosen QDMTT and that the existing framework should be amended to align with this choice. As we understand it, the EU does not have much tax or legal arguments to put forward in support of its pressure on Cyprus and the Ministry of Finance. It is clear that the issue for the EU is political and mainly semantic than anything else. It seems that the Ministry of Finance has succumbed to these targeted political pressures on Cyprus, while other EU member states remain unscathed.
The QDMTT is subject to stricter rules and cannot be abolished in the same way, as it must be maintained for at least three years. The DMTT, on the other hand, can be abolished by the country that adopted it.
A tax dilemma with a cost to the economy
The issue, therefore, is not just about the technical implementation of an international tax rule. It is about whether Cyprus can remain a competitive destination for large multinationals, particularly American ones, in an environment where these companies are now able to objectively compare the tax costs of their presence in Cyprus with other European and international jurisdictions.
The advisors' warning was and remains clear. If Cyprus burdens American multinationals with a tax they do not face in competing jurisdictions, the transfer of activities can be done relatively easily. And, once a large international group transfers its activities, its return to Cyprus is by no means a given.
The question now is whether there is time to change course. The public consultation on the amending bill is underway, while, as it appears, the Ministry of Finance aims to pass it by the end of October.
For Cyprus, therefore, the issue is more than just another tax technicality. It is a matter of competitiveness, investment and economic strategy. And the basic question that arises is simple. Is it worth maintaining a tax that can generate limited additional revenue if this increases the risk of losing large American multinationals and the much larger tax revenues that they already generate in Cyprus? It is never too late there and where there is first the law and second the will. But it requires virtue and boldness from the Ministry of Finance.
(Source: InBusinessNews)
