Introduction of Transfer Pricing Regulations in Cyprus

In June 2022, the Cyprus Parliament approved amendments to the Income Tax Law that introduced detailed Transfer Pricing (TP) requirements into the country’s tax legislation. These provisions, which are in line with the recommendations of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, will take effect when published in the Official Gazette and will have retroactive effect from January 1st, 2022. The new TP rules require documentation from Cypriot tax resident individuals and businesses, as well as permanent establishments of non-tax resident entities, for certain transactions with related parties (called “controlled transactions”). The introduction of these TP requirements aims to provide clarity on proper documentation of controlled transactions and demonstrate adherence to the arm’s length principle.

Definition of Transfer Pricing

Transfer Pricing involves the pricing of commercial relationships and the methods of allocating income between related parties for tax purposes. The arm’s length approach, which involves setting prices as if the transaction were between unrelated parties in similar circumstances, is the most accepted method of determining a transfer price for tax purposes. Prior to the introduction of detailed TP requirements, transfer pricing issues in Cyprus were addressed by the arm’s length principle but provided no guidance on how to apply it in practice. From June 2017 until now, the only type of arrangements subject to TP requirements in Cyprus were intercompany financing arrangements between related parties. With the introduction of these detailed TP requirements, virtually all types of transactions between related parties are now within scope, including the sale of goods, provision of services, licensing and royalties, and financial services.

TP Requirements

The following changes have been made to Section 33 of the Law:

  • Introduction of a 25% threshold for defining the relationship between a Cypriot company and another person for TP purposes.
  • TP documentation requirements for taxpayers meeting the conditions under the 25% relationship test, subject to minimum thresholds.
  • Specification that the arm’s length principle should be applied and interpreted in accordance with the OECD’s TP Guidelines.
  • Introduction of the option to apply for an Advance Pricing Agreement (APA). Additionally, the Council of Ministers has the right to issue regulations regarding the implementation of TP requirements and the procedure for APAs.

Documentation Requirements

From tax year 2022 and onwards, Cypriot tax resident individuals and businesses, as well as permanent establishments of non-Cypriot tax resident persons situated in Cyprus that engage in domestic and/or cross-border controlled transactions, will be required to prepare TP documentation annually. This documentation will include a Cyprus Local File, a Master File (in limited cases), and a Summary Information Table.

Master File

The obligation to prepare a Master File only applies to taxpayers acting as the ultimate parent entity or surrogate parent entity for Country-by-Country Reporting (CbCR) purposes (i.e. with consolidated revenue exceeding €750 million). The Master File contains standardized information about all group companies of a multinational enterprise (MNE) and is intended to provide an overview of the MNE group’s business, operations, and overall transfer pricing policies. The deadline for preparing the Master File is the same as the due date for submitting the company’s income tax return (i.e. 15 months from the end of the tax year). The Tax Department may request the Master File at any time.

Local File Requirements

The local file contains detailed information about specific intercompany transactions, including financial information relevant to the transactions, a comparability analysis, and the selection of the most appropriate transfer pricing method. Exemption from the obligation to prepare a local file is granted to taxpayers engaging in controlled transactions with a total value of less than €750,000 per year per transaction category. The deadlines for preparing and submitting the local file, as well as the requirement for annual updates, are the same as for the master file. The local file must also be subject to a quality review by a person holding a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or from another body of certified auditors approved by the Council of Ministers. The deadline for the preparation of the quality review is the same as the deadline for submitting the company’s income tax return.

Summary Information Table

In addition to preparing documentation files, taxpayers are also required to prepare a Summary Information Table (SIT) on an annual basis. The SIT contains high-level information about transactions with related parties, such as the identification of the related counterparties, their countries of tax residence, and the values of the transactions. The SIT must be submitted to the Tax Department electronically along with the income tax return for the relevant tax year.

Advance Pricing Agreement

The amended Law allows taxpayers to request an Advance Pricing Agreement (APA) from the Cyprus Tax Department for current or future controlled transactions. An APA is a voluntary agreement between the taxpayer and one or more tax authorities that determines, in advance, the appropriate criteria for determining the transfer pricing of the controlled transactions in question. These criteria may include critical assumptions, relevant market conditions, the appropriate TP method to be used, comparable transactions, and appropriate adjustments. The Tax Department has 10 months from the date of the application to reach a decision and communicate it to the taxpayer (the Commissioner reserves the right to extend the deadline up to 24 months). The APA decision will be valid for a maximum of 4 years and the Tax Department has the authority to revise, revoke, or cancel an APA under certain circumstances.


Penalties apply for non-compliance with the documentation requirements. Specifically, a penalty of €500 is imposed for non-submission of the Summary Information Table by the due date. Additionally, if a taxpayer receives a notice from the Tax Department to provide TP documentation (local file or master file) and fails to comply within the statutory 60-day deadline, the following penalties apply: €5,000 if submitted between the 61st and 90th day, €10,000 if submitted between the 91st and 120th day, €20,000 if submitted after the 120th day or not submitted at all.

Next Steps

Both local and multinational groups with a presence in Cyprus that engage in controlled transactions with related parties will be affected by the new transfer pricing regulations. It is important for these groups to take a proactive approach in order to understand and assess the impact of the amended law, plan ahead, and have appropriate transfer pricing policies and procedures in place. It is also necessary to determine the steps needed to ensure compliance with the documentation requirements.

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