Cyprus introduced important changes to its transfer pricing framework from 1 January 2026, including substantially higher thresholds for the preparation of a Cyprus Local File and an expanded connected-person rule.
The amendments were introduced through Law 244(I)/2025, published in the Official Gazette on 31 December 2025, and form part of the wider Cyprus tax reform effective from 1 January 2026.
For many Cyprus companies, the increased thresholds will reduce the requirement to prepare a full Cyprus Local File. However, they do not remove transfer pricing compliance altogether.
The arm’s-length principle still applies to controlled transactions. Companies below the Local File thresholds may still be required to maintain minimum transfer pricing documentation, while the Summary Information Table remains relevant irrespective of whether a Local File is required.
What changed in Cyprus transfer pricing from 1 January 2026?
The most significant change is the increase in the thresholds used to determine whether a taxpayer must prepare a Cyprus Local File.
| Transaction category | Applicable threshold up to 2025 | Threshold from 2026 |
| Financing transactions | €5,000,000 | €10,000,000 |
| Purchase or sale of goods | €1,000,000 | €5,000,000 |
| Services | €1,000,000 | €2,500,000 |
| Royalties and other intangibles | €1,000,000 | €2,500,000 |
| Other controlled transactions | €1,000,000 | €2,500,000 |
The €5 million and €1 million limits shown above are the thresholds that became applicable from tax year 2022 following guidance from the Cyprus Tax Department. The original legislation had initially introduced a €750,000 threshold per category.
Article 33 now provides that a Cyprus Local File exemption applies where the aggregate controlled transactions in the relevant category do not exceed the applicable threshold, or would not exceed it when determined in accordance with the arm’s-length principle.
Accordingly, a financing category of exactly €10 million does not, on the wording of Article 33(9), exceed the threshold. The Local File threshold is breached when the relevant category is above the applicable limit.
What are the five Cyprus transfer pricing transaction categories?
For reporting purposes, controlled transactions are classified into five broad categories: goods; services; royalties and other intangibles; financing transactions; and other transactions.
Although three different monetary threshold levels apply from 2026, businesses should continue classifying their transactions under the appropriate SIT category rather than combining services, intellectual property and other transactions into one reporting category.
Typical financing transactions include intercompany loans and other funding arrangements. Goods may include purchases or sales of inventory and other tangible products. Services may include management, administrative, IT, accounting or support services. Royalties and intangibles may include licences and payments for intellectual property.
Correct classification is important because the Local File threshold is assessed by reference to the aggregate amount within each transaction category.
Has the definition of connected persons changed?
Yes. The existing connected-person provisions remain in place, including the at least 25% tests relating to voting rights, share capital or entitlement to income.
The 2026 amendments introduce an additional rule dealing with control exercised at board level.
A director or adviser of a company is now treated as connected with that company where the individual, either alone or together with persons connected with them, holds at least 50% of the voting rights in relation to decisions taken by the company’s board of directors, where those rights arise under the company’s articles of association or another form of shareholder authorisation.
This distinction is important.
The new rule does not mean that every director or consultant automatically becomes a connected person. Nor does it refer simply to holding 50% of the company’s ordinary shareholder voting rights. The test specifically addresses voting power over board decisions.
It may therefore capture governance arrangements where a director or adviser exercises significant control without meeting the traditional shareholding tests.
Companies with bespoke board structures, shareholder reserved powers or enhanced director voting arrangements should review whether the 2026 amendment changes their connected-person analysis.
Who needs to prepare a Cyprus Local File in 2026?
A Cyprus taxpayer undertaking controlled transactions should first identify its connected persons, classify its transactions into the five relevant categories and calculate the aggregate amount for each category during the tax year.
Where the applicable Local File threshold is exceeded, the Cyprus Local File requirements apply in respect of the relevant above-threshold category.
However, transactions falling below the threshold do not simply disappear from the transfer pricing framework.
The arm’s-length principle applies regardless of the value of the transaction. In addition, Circular 6/2023 requires taxpayers falling outside the Local File requirement to maintain minimum transfer pricing documentation supporting the arm’s-length nature of their controlled transactions.
This distinction is one of the most important practical aspects of the 2026 rules:
Higher Local File thresholds reduce the full documentation burden; they do not create a transfer pricing exemption.
What documentation is required below the Local File thresholds?
Circular 6/2023 introduced simplified documentation requirements for taxpayers that are exempt from preparing a Cyprus Local File.
The minimum documentation ordinarily includes a brief functional analysis covering functions performed, assets used and risks assumed; the characterisation of the entity based on that functional analysis; identification and justification of the most appropriate transfer pricing method; and determination of the arm’s-length remuneration using appropriate benchmarking, comparables or another OECD-consistent analysis.
Depending on the transaction, optional simplification measures or safe harbours may also be available.
Care is required when using those measures. The application of the Circular 6/2023 unilateral safe-harbour provisions to qualifying cross-border controlled transactions can give rise to reporting under DAC6 Hallmark E.1.
This DAC6 interaction is considerably more relevant to Cyprus transfer pricing compliance than DAC8 or DAC9.
What must a Cyprus Local File contain?
A Cyprus Local File provides detailed support for the pricing of controlled transactions undertaken by the Cyprus taxpayer.
It generally covers the local entity’s management and organisational structure, its business and role within the group, details of the controlled transactions and counterparties, relevant intercompany agreements, a detailed functional analysis, selection and application of the appropriate transfer pricing method, economic and comparability analysis, relevant financial information and the resulting arm’s-length conclusion.
Recognised transfer pricing methods include the Comparable Uncontrolled Price method, resale price method, cost-plus method, Transactional Net Margin Method and profit split method. The appropriate methodology depends on the facts and circumstances of the transaction.
Article 33 provides that the Cyprus arm’s-length provisions may be applied and interpreted in accordance with the OECD Transfer Pricing Guidelines as amended or replaced from time to time.
Is a Quality Assurance Review required?
Yes.
Where a Cyprus Local File is required, a Quality Assurance Review must be performed no later than the deadline for filing the taxpayer’s income tax return.
The review must be carried out by a person holding an appropriate practising certificate issued by the Institute of Certified Public Accountants of Cyprus (ICPAC) or another recognised body of auditors in Cyprus.
This should be incorporated into the company’s compliance timetable from the outset rather than addressed after the Local File has been prepared.
What is the Summary Information Table?
The Summary Information Table, commonly referred to as the SIT, is the annual transfer pricing reporting form containing high-level information about a taxpayer’s controlled transactions.
Importantly, the SIT obligation is not subject to the Local File monetary thresholds.
Article 33 requires relevant Cyprus taxpayers carrying out controlled transactions to submit the SIT electronically for each tax year together with their income tax return.
A company can therefore be below all of the 2026 Local File thresholds and still have both an SIT filing obligation and minimum transfer pricing documentation requirements.
What is the transfer pricing deadline for tax year 2026?
For tax years from 2026 onwards, the Cyprus corporate income tax return deadline has changed to 31 January of the second year following the relevant tax year.
Accordingly, based on the legislation currently in force, the income tax return for tax year 2026 is due by 31 January 2028.
Because the SIT is submitted together with the income tax return, that deadline also drives the 2026 SIT compliance timetable.
Where a Cyprus Local File is required, it must be prepared and its Quality Assurance Review completed by the applicable income tax return deadline. The Local File itself is not routinely submitted with the tax return; however, if requested by the Cyprus Tax Department, it must be made available within 60 days of the request.
Late or non-compliance can result in penalties. Failure to submit the SIT can result in a €500 penalty, while penalties relating to failure or delay in providing required transfer pricing documentation following a Tax Department request can range from €5,000 to €20,000.
Practical Cyprus transfer pricing checklist for 2026
- Identify all connected persons, taking into account the existing 25% tests and the new board-level control rule.
- Identify all controlled transactions entered into during the 2026 tax year.
- Classify them correctly as goods, services, royalties/intangibles, financing or other transactions.
- Aggregate the transactions by category and compare them with the €10m, €5m or €2.5m Local File threshold.
- Prepare a Cyprus Local File where required, allowing sufficient time for the mandatory Quality Assurance Review.
- Where below the Local File thresholds, maintain minimum TP documentation in accordance with Circular 6/2023 rather than relying only on an internal threshold assessment.
- Prepare and submit the SIT with the company’s income tax return irrespective of whether the Local File threshold has been exceeded.
- Review intercompany agreements and pricing policies to ensure that the legal documentation, actual conduct and transfer pricing analysis are aligned.
How Evidentrust can help
The higher 2026 Local File thresholds may simplify compliance for many Cyprus companies, but they do not eliminate transfer pricing obligations.
Evidentrust’s experienced accountants in Cyprus can help businesses understand their transfer pricing obligations, assess connected-person relationships, classify controlled transactions and determine whether Local File thresholds apply. The team can also support businesses with SIT requirements and the preparation of appropriate transfer pricing documentation.
Where a full Local File is required, the process should be planned sufficiently early to allow the necessary documentation, economic analysis and Quality Assurance Review to be completed within the statutory timetable.
Have intercompany or related-party transactions involving a Cyprus company? Contact Evidentrust at info@evidentrust.com to discuss the transfer pricing requirements applicable to your structure.
This article is provided for general information purposes only and does not constitute tax, legal or other professional advice. Transfer pricing requirements depend on the facts and circumstances of each case, and professional advice should be obtained before taking or refraining from any action.
Frequently Asked Questions
What are the Cyprus transfer pricing thresholds for 2026?
From 1 January 2026, the Cyprus Local File thresholds are €10 million for financing transactions, €5 million for purchase or sale of goods, and €2.5 million for services, royalties and other intangibles, and other controlled transactions.
Do I need transfer pricing documentation if my transactions are below the thresholds?
Yes. You may be exempt from preparing a full Cyprus Local File, but this does not remove the arm’s-length requirement. Circular 6/2023 requires minimum transfer pricing documentation for controlled transactions falling below the applicable Local File thresholds.
Do I still need to submit the SIT if I am below the Local File thresholds?
Generally, yes. The Summary Information Table obligation applies to taxpayers undertaking controlled transactions and does not have the same materiality threshold as the Local File requirement.
What happens if only one transaction category exceeds its threshold?
Exceeding the threshold in one category triggers the full Local File documentation requirement for the relevant category. Controlled transactions in other categories remain subject to the arm’s-length principle, SIT reporting and, where applicable, minimum documentation requirements.
Does every director become a connected person under the 2026 rules?
No. The new provision concerns a director or adviser who, alone or together with connected persons, has at least 50% of the voting rights in decisions taken by the board of directors under the company’s articles or another form of shareholder authorisation. The ordinary connected-person tests, including the 25% tests, continue to apply separately.
Does a Cyprus Local File have to be submitted with the tax return?
No. The Local File must be prepared and, where applicable, quality-reviewed by the relevant compliance deadline, but it is generally retained by the taxpayer. If requested by the Cyprus Tax Department, it must be provided within 60 days.
What is the Cyprus transfer pricing deadline for 2026?
For a company with a calendar tax year, the current income tax return deadline for tax year 2026 is 31 January 2028. The SIT is due with the return, while any required Cyprus Local File and Quality Assurance Review should be completed by that deadline.
