Transfer Pricing in Cyprus: What Every Business Should Know

Cyprus transfer pricing rules apply to transactions between related parties and require businesses to demonstrate that such transactions are conducted on arm’s length terms. Following the introduction of revised documentation thresholds effective from the 2026 tax year, understanding the applicable compliance requirements has become increasingly important.

Transfer pricing refers to the pricing of transactions between related parties, such as companies belonging to the same group. Under Cyprus tax legislation, these transactions must comply with the arm’s length principle, meaning that the terms and conditions should be consistent with those that would have been agreed between independent parties under similar circumstances. The objective is to ensure that profits are allocated fairly and taxed in the appropriate jurisdiction.

The transfer pricing rules apply to a broad range of related-party transactions, including:

• Sale and purchase of goods;
• Provision and receipt of services;
• Financing arrangements, including loans and guarantees;
• Intellectual property transactions, including royalties and licensing agreements;
• Other intercompany transactions between related parties.

Businesses are expected to maintain sufficient supporting evidence to demonstrate that their intercompany transactions are conducted in accordance with market conditions and the OECD Transfer Pricing Guidelines.

The level of transfer pricing documentation required depends on the value and nature of the related-party transactions. With effect from tax years commencing on or after 1 January 2026, Cyprus introduced revised thresholds for Local File documentation requirements. The applicable thresholds before and after the amendments are presented below:

Previous thresholds (up to and including the 2025 tax year):

• €5 million for financial transactions;
• €1 million for all other categories of transactions, including goods, services, royalties and intellectual property transactions.

New thresholds (effective from 1 January 2026 onwards):

• €10 million for financial transactions;
• €5 million for transactions involving goods;
• €2.5 million for all other categories of transactions, including services, royalties and intellectual property transactions.

In addition, multinational groups with consolidated revenue exceeding €750 million may be required to maintain a Master File. Regardless of whether the above thresholds are exceeded, taxpayers with related-party transactions are generally required to report such transactions through the Summary Information Table (SIT) submitted together with their annual income tax return.

As tax authorities continue to place greater emphasis on transfer pricing compliance, businesses should regularly review their related-party transactions and documentation processes. Taking a proactive approach can help identify compliance obligations, reduce tax risks, and avoid potential penalties arising from insufficient transfer pricing documentation.

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