New Simplification measures for Intra-Group Transactions
On 12th of October 2026, the Circular 5/2026 was published and revised the financing returns that would be valid FY2026 to:
- Debt-funded financing: 0.5% where the lender does not control or have the capacity to assume the financing risks, and 2% otherwise;
- Equity-funded loans: borrower’s ten-year government bond yield plus 2.25%; and
- Related-party borrowings: Cyprus ten-year government bond yield plus 1.75%.
For financing transactions denominated in a currency other than the domestic currency of the borrower’s jurisdiction, the ten-year government bond yield of that jurisdiction in the loan currency should be used, provided it is published on the Tax Department’s website. If the relevant yield is unavailable, the taxpayer should contact the Tax Department’s Transfer Pricing Unit to determine the applicable reference rate.
The simplification measures apply to taxpayers exempt from maintaining a Cyprus Local File. However, falling below the applicable threshold does not automatically qualify a taxpayer for their application. The measures cannot be used where reliable internal comparables are available, and their application must be disclosed in the income tax return or Summary Information Table. Low value-adding services must be supportive and must not involve core activities, valuable intangibles or significant risks.
Taxpayers seeking to apply the simplification measures to FY2026 transactions falling between the previous and revised thresholds should first confirm their availability.
We remind here, that Circular 6/2023 had introduced optional prescribed returns for eligible transactions, allowing taxpayers to avoid a benchmarking analysis. Up to FY2025, these are:
- Debt-funded financing: 2.5% minimum pre-tax return;
- Equity-funded loans: borrower’s ten-year government bond yield plus 3.5%;
- Related-party borrowings: Cyprus ten-year government bond yield plus 1.5%; and
- Low value-adding services: 5% mark-up on relevant costs.
The use of a Transfer Pricing simplification measure does not remove any separate obligations under DAC6. Where the relevant controlled transaction forms part of a cross-border arrangement, the taxpayer should assess whether the arrangement meets any of the applicable DAC6 hallmarks and, if so, ensure that it is reported by the responsible intermediary or, where the reporting obligation rests with the taxpayer, by the taxpayer within the applicable deadline.
The Transfer Pricing framework in Cyprus in brief
Higher Local File thresholds, continuing Transfer Pricing responsibilities
With effect from 1 January 2026, revised thresholds govern whether a Cyprus Local File must be prepared. The increased thresholds, however, do not create a broad exemption from Cyprus Transfer Pricing requirements. Taxpayers must continue to identify and classify their controlled transactions, assess whether their pricing complies with the arm’s-length principle, maintain proportionate supporting documentation and submit the Summary Information Table, where applicable.
- The revised thresholds determine when a full Cyprus Local File must be prepared. They do not relieve taxpayers of the underlying obligation to price and support the controlled transactions on an arm’s-length basis.
What remains in Force
Cyprus Transfer Pricing rules require controlled transactions between related parties to be priced in accordance with the arm’s-length principle. Depending on the annual value of the controlled transactions within each category, a taxpayer may be required to prepare a Cyprus Local File. In all cases, taxpayers with controlled transactions must submit a Summary Information Table and maintain appropriate supporting documentation.
Cyprus Transfer Pricing Local File Thresholds for 2026
As of 1 January 2026, Cyprus materially raises the transaction-value limits used to establish whether preparation of a Cyprus Local File is required. Relative to the limits applying in FY2022-FY2025, the revised thresholds increased from €5 million to €10 million for financing transactions, from €1 million to €5 million for purchases or sales of goods, and from €1 million to €2.5 million for services, royalties and other controlled transactions.
Consequently, where the aggregate value of a category of controlled transactions remains below the revised limit, a full Cyprus Local File is not required for that category. Nevertheless, all controlled transactions remain subject to the arm’s-length principle and should continue to be supported by appropriate Transfer Pricing documentation.
How to determine whether a Local File is required
The threshold assessment is carried out independently for every transaction category. For the relevant tax year, the values of all controlled transactions within a single category must be aggregated. A Cyprus Local File is required when the amount of controlled transactions within a category exceeds the relevant threshold or would exceed if the transactions were priced at arm’s length. A transaction recorded at no charge or below market value is therefore measured at its arm’s length value for this purpose.
Taxpayers should therefore avoid assessing individual agreements or counterparties in isolation.
Cyprus Transfer Pricing Requirements Below the Local File Threshold
Circular 6/2023, issued by the Tax Department on 6 July 2023 and applicable for tax year 2022 onwards, provides administrative guidance for persons exempt from maintaining a Cyprus Local File. Under that guidance, the minimum documentation should include:
- a brief functional analysis covering the functions performed, assets used and risks assumed;
- the characterization of the entity based on that functional analysis;
- the reasons for selecting the Transfer Pricing method applied; and
- the determination of the arm’s-length price using internal or external comparables or another appropriate analysis consistent with the OECD Transfer Pricing Guidelines, where relevant.
The minimum documentation is not filed with the Tax Department, but it must be updated for each tax year and submitted within 60 days of a request.
Being below the relevant Local File threshold does not, on its own, eliminate the annual obligation to submit the Summary Information Table. Taxpayers within the relevant statutory scope must continue to report their controlled transactions electronically for each tax year together with the income tax return by the applicable filing deadline.
- Transactions below the threshold remain within the Transfer Pricing framework. Although a full Cyprus Local File may not be necessary, taxpayers must continue to apply the arm’s length principle, submit a Summary Information Table and retain appropriate supporting documentation.
Other changes taxpayers should be aware of
Connected person rule
Under the amending law, a director or adviser is treated as connected with the company when that person, individually or jointly with connected persons, controls at least 50% of the voting rights governing decisions of the company’s board under the company’s articles or another form of shareholder authorization. The rule should be applied to the entity’s actual voting and governance arrangements.
Use of company assets
A limited exception was introduced for the use of company assets by a direct or indirect shareholder, or by a person connected with that shareholder, to the extent that the shareholder has paid Special Contribution for Defence on the corresponding disguised dividend distribution under Article 3A(2)(a) of the Special Contribution for Defence Law. The exception is narrowly framed and should not be understood as a general exemption for transactions involving shareholders, directors or other connected persons.
Recommended next steps
Taxpayers engaged in controlled transactions should:
- identify connected persons and controlled transactions;
- classify transactions under the correct category;
- aggregate the annual value of transactions within each category;
- support the pricing applied with an appropriate Transfer Pricing analysis;
- consider whether a simplification measure under Circular 6/2023 is available and, if applied, declare it in the income tax return; and
- meet the applicable reporting and documentation deadlines.
Key takeaway
The revised FY2026 thresholds represent a significant easing of the Cyprus Local File requirements for certain taxpayers. Even so, taxpayers engaging in controlled transactions should not treat amounts below the relevant thresholds as eliminating their Transfer Pricing obligations. The arm’s-length principle, appropriate supporting documentation and the Summary Information Table remain central elements of the Cyprus compliance framework.
For further information or support, please contact our Transfer Pricing specialists at tp@privelpartners.com
