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Helping you easily find everything you need to know about the rules and regulations regarding transfer pricing and Country by Country reporting for every country you do business with.
Global transfer pricing guide
Transfer pricing -Cyprus
01 Jan 20256 min read
This publication provides a high-level overview of Cyprus transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents
Transfer Pricing Legislation in Cyprus
The Cyprus parliament amended Article 33 of the Income Tax Law concerning Transfer Pricing, and at the same time issued regulations concerning the application of the new Transfer Pricing legislation.
The law and regulations have been published in the Government Gazette on 08 July 2022 and are effective from 01 January 2022.
Covers all type of transactions between related parties in excess of:
€5.000.000 for financing transactions (for threshold purposes the principal amount including interest charged but not paid is taken into account); and
€1.000.000 for all other types of transactions (i.e. Goods , Services , IP related).
Type of transactions covered:
Goods: sale and purchase;
Services: provision and receipt of services;
IP Related: sale, purchase, leasing of intangible assets;
Financing: provision and receipt of financing;
Other: any other transaction between related parties.
Moreover, on 06 July 2023, the Cyprus Tax Department provided further guidance through a tax circular (6/2023), with regards to simplified documentation requirements for transactions with related parties that do not exceed the designated threshold for the preparation of a Cyprus Local File.
A company is connected with another company under the following conditions:
If the same person has, directly or indirectly, at least 25% of the voting rights or of the share capital or is entitled to at least 25% share of the income of both companies;
If the same person and persons connected with that person holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the income of both companies;
If a group of two or more persons holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the income of each company and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom that person is connected.
A company is connected with another person under the following conditions:
if this person holds, directly or indirectly, at least 25% of the voting rights or of the share capital or is entitled to at least 25% share of the company's income or if that person and persons connected with him together holds, directly or indirectly, at least 25% of the voting rights or of the share capital or are entitled to at least 25% share of the company's income;
any two or more persons acting together to secure directly or indirectly, at least 25% of the voting rights or share capital or a right to a share of at least 25% of the income of a company, shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure directly or indirectly 25% of the voting rights or share capital or a right to a share of at least 25% of the income of that Company.
Transfer pricing documentation and CbCR
The ratification of the new TP legislation aims towards the completion of the three-tiered approach, as per the guidelines of BEPS Action 13 (CbCr / Master File / Local File).
Introduces TP documentation requirements to Cyprus tax resident companies and permanent establishments (that meet the aforementioned threshold) to:
Prepare a Local File, containing information and documentation for any intercompany transaction that the local entity is engaged with related parties;
Prepare a Master file, containing high level information about the global business operations and TP policy of the MNE group (*applies to ultimate or surrogate parent entities of MNE groups with consolidated revenues over €750m*);
Submit a Summary Information Table (SIT) outlining the transactions with related parties.
Safe Harbor provisions for certain types of transactions
Type of Transaction
Back-to-Back financing arrangements
Safe Harbor Provisions: Min Return of 2.5% (after expenses).
Provision of finance to related parties financed through own funds or equity (i.e. Loans Receivables)
Safe Harbor Provisions: Min Return shall be the yield rate of the 10-year government bond (as of 31 Dec of prior year) of the country in which the funds are lended (borrowers' jurisdiction), plus 3.5%.
Finance received from related parties used for business purposes (i.e. Loans Payables)
Safe Harbor Provisions: Borrowing cost shall not exceed the yield rate of the 10-year government bond (as of 31 Dec of prior year) of Cyprus, plus 1.5%.
Low value-added services
Safe Harbor Provisions: Min return of 5% mark-up on associated costs.
Minimum Transfer Pricing Documentation Requirements
Brief description of the functional analysis of the entity under review (i.e., main functions performed, assets used, and risks assumed);
Company’s characterization based on the functional analysis performed;
Most appropriate TP method for the transaction under review and the rational of its use;
Determination of the arm’s length price based on benchmarking analysis performed (based on internal or external comparables) or any other analysis in line with the OECD TP guidelines, for transactions not falling under the safe harbor provisions categories.
CbC reporting requirements apply in Cyprus from fiscal year beginning on or after 01 January 2016.
Applies to MNE groups with consolidated group revenue of €750 million or more in the immediately preceding fiscal year.
The following constituent entities are required to file a CbC report in Cyprus:
A Cyprus tax resident ultimate parent entity of an MNE group;
A Cyprus surrogate parent entity of an MNE group;
A Cyprus constituent entity (may be required) under the secondary reporting mechanism.
Moreover, a constituent entity of an MNE group that is tax resident in Cyprus files a notification with the Cyprus Tax Department, disclosing the identity and tax residency of the reporting entity of the group for CbCR purposes.
Local / Master File: upon request should be made available withing 60 days (Annual preparation requirement & should be prepared by the Income Tax Return deadline).
SIT: Should be prepared by the Income Tax Return (ITR) deadline (i.e.15months from the end of the tax year under review) and submitted electronically together with the ITR. It shall be noted that the filing deadline for tax year 2022 and 2023 has been extended to 31 May 2025 and 30 November 2025 respectively.
CbCR notification: filing must be made no later than the last day of the fiscal year to which the CbC report relates to.
CbC Report: must be filed with the Cyprus Tax Department no later than 12 months after the last day of the fiscal year to which the CbC Report relates to.
The penalties vary between €500 – €20.000 depending on each case.
Non submission of TSI within the agreed deadline - €500.
Late filing of the Local / Master file (61st – 90th day) – €5.000.
Late filing of the Local / Master file (91st – 120th day) – €10.000.
Late filing of the Local / Master file (after the 121st day) – €20.000.
A penalty of up to €10.000 and €5.000, in respect of each CbC Report and notification respectively, may be imposed on a Cypriot Constituent Entity for non-compliance. Under certain circumstances each penalty may be increased up to €20.000.
Advance Pricing Agreements (APAs)
Determines in advance the transfer pricing price and methodology of a transaction(s) under review for a specific period of time.
The applicability of an APA is set to four (4) years.
Timeline for the Cyprus Tax Department to finalize an APA (10 – 24 months).
An APA can either be revised or revoked in case the contractual terms or assumptions on which the APA was based have changed.
Contact us
For further information on transfer pricing in Cyprus please contact:
