Cyprus Transfer Pricing 2026: A Practical Guide for Group Controllers

The Cyprus transfer pricing landscape changed materially with N.244(I)/2025, which amended Article 33 of the Income Tax Law as part of the broader 2026 reform package. From 1 January 2026, the thresholds that determine whether your Cyprus subsidiary must keep a Cyprus Local File have been raised significantly. Many group controllers will read this as good news.

It is. But not in the way most people assume.

The new Cyprus transfer pricing 2026 thresholds remove the Local File burden for a large number of medium-sized subsidiaries. They do not remove the obligation to apply the arm’s length principle. They do not remove the requirement to file the Summary Information Table. And they do not remove the requirement to keep minimum transfer pricing documentation on file. This is the practical guide your finance team needs.

the threshold change at a glance

Until and including tax year 2025, a Cyprus subsidiary needed to keep a Cyprus Local File where its controlled transactions in the financing category exceeded €5,000,000 per year, or €1,000,000 in any other category, calculated on an arm’s length basis. These thresholds had been in place since the Tax Department’s revision of 1 February 2024, applied retroactively from 2022 onwards.

From tax year 2026 onwards, Article 33(9)(a) of the Income Tax Law sets new and significantly higher thresholds. The general threshold rises to €2,500,000 per category per tax year. For the sale and purchase of goods, the threshold rises to €5,000,000 per year. For financing transactions, the threshold rises to €10,000,000 per year. The thresholds continue to apply per category and per tax year, on an arm’s length basis.

This is meaningful relief. Many companies that were borderline or just above the old lines will now sit comfortably below the new general threshold. Financing-heavy structures with intra-group loans benefit the most — the €10 million threshold captures all but the largest treasury operations.

However, this is where the misreading starts.

the obligation does not disappear

Article 33(1) of the Income Tax Law requires that all transactions between related parties are conducted on an arm’s length basis. That obligation is independent of any documentation threshold. The Tax Department can adjust your taxable profit upwards if your transfer prices fail the arm’s length test, regardless of whether you were required to keep a Local File.

Therefore, the threshold question is not whether you have a transfer pricing obligation. You always do. The question is what level of documentation you must keep to support it. There are three documentation regimes you need to understand.

regime one: full local file

If your controlled transactions in any category exceed the relevant threshold, your Cyprus company must keep a Cyprus Local File. A Master File is also required, but only where the entity is the Ultimate Parent Entity or Surrogate Parent Entity of an MNE group with consolidated group revenue exceeding €750 million. Most Cyprus subsidiaries within international groups will not be the UPE or SPE and are therefore exempt from the Master File obligation, regardless of thresholds.

The Local File is a substantive document. It describes the organisational structure of the entity, its business activities, and its strategy. It identifies controlled transactions and counterparties and includes copies of intercompany agreements. For each category of controlled transaction, the file contains a comparability and functional analysis, the chosen transfer pricing method with justification, the comparable data used, and any adjustments made. It includes audited financial statements with reconciliations to the transfer pricing analysis.

The Local File must be ready by the time your subsidiary’s income tax return is due. It is kept at the Cyprus office and produced for the Tax Department within 60 days of any request, as required by Article 33(11). Documentation can be kept in English, with Greek translation provided only if specifically requested.

The Cyprus Local File is also subject to a quality assurance review carried out by an ICPAC-licensed practitioner. The review results in a standardised confirmation submitted alongside the Summary Information Table. This is a formal compliance requirement, not a procedural formality, and the practitioner who signs off carries professional responsibility for the review.

regime two: minimum transfer pricing documentation

If your controlled transactions in a given category fall below the relevant threshold, your subsidiary is exempt from keeping a Cyprus Local File for that category. It is not exempt from keeping documentation.

Circular 6/2023 sets out the minimum transfer pricing documentation that must be kept on file. It requires a brief functional analysis of the entity, a description of its functional profile based on that analysis, the reasoning for the chosen transfer pricing method, and the determination of the arm’s length price supported by appropriate benchmarking or economic analysis based on internal or external comparables.

This is a lighter file than a full Local File. It is still real documentation. It must be ready by the income tax return deadline, kept on file, and produced within 60 days of a Tax Department request.

For two specific subcategories — financing transactions and low value-adding services — the Circular offers an optional simplification route. Subsidiaries that meet the conditions can apply prescribed safe harbour returns or margins instead of preparing a full benchmarking analysis. The safe harbour route is not available where reliable internal comparables exist. The conditions are specific and the rates are updated annually. We advise on whether your fact pattern qualifies before this route is taken.

regime three: the summary information table

The Summary Information Table is filed by every Cyprus tax resident person, and every Cyprus permanent establishment of a non-resident, that has any controlled transactions during the tax year. There is no minimum value. There is no exemption. If you have related-party transactions, you file.

The SIT is submitted electronically through the Tax For All portal, together with the income tax return, by the relevant filing deadline. It captures the counterparty’s tax identification number, the jurisdiction of tax residency, and the value of transactions split by category — sale and purchase, provision and receipt, are reported separately.

This is the form most controllers underestimate. A subsidiary can be fully below the Local File threshold, fully exempt from the substantive documentation, and still be in default if the SIT is not filed correctly and on time. Penalties apply — €500 for non-submission within the agreed deadline, with separate and significantly higher penalties applying to late filing of the Local or Master File.

connected persons: the expanded definition from 2026

Alongside the threshold revision, N.244(I)/2025 also broadened the definition of connected persons. From 1 January 2026, a company director or consultant is regarded as a connected person to the company where they, individually or together with other connected persons, hold at least 50% of the voting rights in board decisions of the company, whether such rights arise from the articles of association or shareholder authorisation.

This amendment captures cases where control is exercised at board level through voting rights, even where no direct shareholding threshold is met. The 25% relationship test for connected persons more broadly remains in place. The practical effect is that some director and consultant arrangements that were previously outside the transfer pricing perimeter are now within it. Groups with director-led decision-making structures should review their arrangements carefully before the 2026 SIT is filed.

what this means for tax year 2025

The new thresholds apply from 1 January 2026. They do not apply retrospectively. If your subsidiary’s tax year 2025 controlled transactions exceeded €5 million in financing or €1 million in any other category, the old rules apply and a full Cyprus Local File is required for 2025, even if your 2026 figures will fall below the new thresholds.

Therefore, the practical question for the next twelve months is not what changes from 2026. It is what you owe for 2025 first, and how the new rules affect your 2026 planning second. Many groups will need to prepare a Local File for 2025 and minimum documentation for 2026 in parallel. This is a workload planning issue as much as a compliance issue — the 2025 Local File and the 2026 minimum documentation are due in different cycles, and the underlying analysis for both should be coordinated to avoid duplication of effort.

The interaction with the Cyprus statutory audit requirements also matters. The audited financial statements that accompany the income tax return are referenced in the Local File analysis, and the auditor’s review of related-party transactions feeds into the substance of the documentation. Coordinating audit and TP timelines across both years reduces the risk of inconsistency between the two.

the bottom line

The headline is that fewer Cyprus companies will need a full Local File from 2026 onwards. The reality is that the arm’s length principle still applies to every controlled transaction. The Summary Information Table is still filed by every entity with related-party transactions. Minimum documentation is still required below the threshold. The connected persons definition has broadened.

For groups managing Cyprus subsidiaries from abroad, the right response is to map your 2025 and 2026 controlled transactions by category, confirm which threshold regime applies for each year, and put the appropriate documentation in place before the filing deadline rather than after. The cost of getting this wrong is an upward profit adjustment, penalties, and an exposure that compounds across years.

This is also where the defensive measures framework  interacts with transfer pricing. Where a Cyprus company has controlled transactions with associated entities in low-tax or blacklisted jurisdictions, the transfer pricing analysis must account for the defensive measures position before the SIT is filed and before the tax return reflects the relevant treatment. The two compliance streams cannot be addressed in isolation.

frequently asked questions

Does my Cyprus company need a Local File for 2025 if its 2026 transactions will be below the new threshold?

Yes, if its 2025 controlled transactions exceeded the pre-2026 thresholds — €5 million for financing or €1 million for any other category — a full Cyprus Local File is required for tax year 2025. The new thresholds apply from 1 January 2026 onwards and do not have retrospective effect. The 2025 obligation is determined entirely by the rules in force for that year.

If my Cyprus company is below all the new thresholds, do I still need to file the Summary Information Table?

Yes. The Summary Information Table is filed by every Cyprus tax resident person and every Cyprus permanent establishment with any controlled transactions during the tax year. There is no minimum value and no exemption. The SIT obligation is independent of the Local File obligation. A subsidiary fully below the Local File thresholds still files the SIT and still maintains minimum transfer pricing documentation under Circular 6/2023.

Does my Cyprus subsidiary need a Master File?

Only if it is the Ultimate Parent Entity or Surrogate Parent Entity of an MNE group with consolidated group revenue exceeding €750 million. Most Cyprus subsidiaries within international groups will not meet this test and are therefore exempt from the Master File obligation regardless of thresholds. The group’s Master File obligation typically falls on the entity in another jurisdiction.

What are the penalties for failing to comply?

Penalties for non-compliance vary between €500 and €20,000 depending on the breach. Non-submission of the SIT within the agreed deadline carries a €500 penalty. Late filing of the Local or Master File carries graduated penalties: €5,000 for filing between days 61 and 90 from request, €10,000 between days 91 and 120, and €20,000 from day 121 onwards. Separate penalties apply for failures relating to Country-by-Country reporting where applicable.

Can I apply the safe harbour rates instead of doing a benchmarking analysis?

The safe harbour rates available under Circular 6/2023 apply only to financing transactions and low value-adding services, and only where the subsidiary is exempt from the Local File obligation for that category. The safe harbour cannot be applied where reliable internal comparables exist — that is, where the same Cyprus entity carries out comparable transactions with unrelated parties at observable arm’s length terms. The conditions are specific and the rates are updated annually. Confirm the position before relying on the safe harbour route.

How does the new connected persons definition affect director and consultant arrangements?

From 1 January 2026, a director or consultant who, alone or with connected persons, holds at least 50% of the voting rights in board decisions is treated as a connected person of the company. Some director-led decision-making structures that were previously outside the transfer pricing perimeter now fall within it, and their controlled transactions with the company need to be captured in the 2026 SIT. Groups with substantive director or consultant arrangements should review the position before the 2026 tax year is closed.

Speak to us directly

If your group has Cyprus subsidiaries with controlled transactions, the right time to assess the position for both 2025 and 2026 is now, before the filing deadlines, not after. The cost of preparing documentation in advance is materially lower than the cost of responding to a Tax Department information request without it.

At Nikita & Partners, we prepare Cyprus Local Files and minimum transfer pricing documentation, file the Summary Information Table, conduct the ICPAC quality assurance review, and advise on the interaction between transfer pricing, the defensive measures framework, and statutory audit obligations. Email us at info@nikitapartners.com.cy.

Disclaimer

This article is intended for general informational purposes only and does not constitute tax, legal, or professional advice. The analysis is based on Article 33 of the Cyprus Income Tax Law as amended by N.244(I)/2025, Circular 6/2023, and official guidance as at May 2026. Every group structure is different, and the application of these rules to your specific facts requires a proper professional assessment. Nikita & Partners Limited accepts no liability for any action taken or not taken in reliance on the information contained in this article. If you need advice specific to your situation, contact us at info@nikitapartners.com.cy.