A transfer pricing study in Cyprus is an essential requirement for companies engaged in intercompany transactions with related parties. Since the introduction of comprehensive transfer pricing legislation in 2022, businesses must comply with strict documentation and reporting requirements to ensure that transactions align with the arm’s length principle.
This blog provides a detailed breakdown of transfer pricing requirements in Cyprus, including key definitions, compliance obligations, and penalties for non-compliance.
The importance of transfer pricing legislation in Cyprus stems from its role in preventing tax evasion and ensuring fair market pricing for transactions between related entities. The new regulations align Cyprus with the OECD Transfer Pricing Guidelines, offering transparency and legal certainty for multinational enterprises operating in the country.
With tax authorities worldwide tightening their scrutiny on intercompany transactions, compliance with transfer pricing rules is crucial to avoiding penalties and ensuring smooth operations for businesses.
The transfer pricing legislation applies to:
By defining the scope of applicability, the law ensures that all relevant entities maintain proper documentation and transparency in their tax affairs.
The law introduces a 25% threshold to determine whether two entities are related. According to this rule, two entities are considered related if:
This definition ensures that businesses cannot structure their ownership in a way that circumvents transfer pricing regulations.
Cyprus’s transfer pricing regulations impose two main compliance requirements on companies:
Both documents must be maintained and readily available upon request by the Cyprus Tax Department.
The Local File provides documentation supporting compliance with the arm’s length principle. It is mandatory for companies that exceed €750,000 in intercompany transactions per category per year. The file must contain:
If a company’s transactions fall below this threshold, it is exempt from preparing the local file.
The Master File provides a broader overview of a multinational group’s transfer pricing policies. It is only required for companies that act as the Ultimate Parent Entity (UPE) or Surrogate Parent Entity (SPE) of a multinational group with Country-by-Country Reporting (CbCR) obligations. This applies to groups with consolidated revenue exceeding €750 million.
The Master File should include:
For smaller companies, the Master File requirement does not apply.
Yes, the new legislation allows companies to apply for an Advance Pricing Agreement (APA) with the Cyprus Tax Commissioner. An APA provides pre-approval on:
The Tax Commissioner issues a decision within 10 months of application, and the APA remains valid for up to four years. This provides companies with certainty in their tax treatment, reducing the risk of future disputes.
To avoid penalties, businesses must adhere to strict deadlines:
Penalties for non-compliance include:
Delay | Penalty |
61 – 90 days | €5,000 |
91 – 120 days | €10,000 |
More than 120 days or failure to submit | €20,000 |
Late submission of Summary Information Table | €500 |
Failure to comply with these deadlines can result in significant financial penalties, making timely submission essential.
To ensure compliance, businesses should:
Seek Professional Assistance – Consult tax advisors or licensed firms specializing in transfer pricing to navigate regulatory complexities.
Need Assistance with Transfer Pricing in Cyprus?
Ensuring compliance with transfer pricing regulations is crucial to avoiding penalties and ensuring smooth business operations. If you need assistance, we can connect you with licensed transfer pricing experts in Cyprus who can help with documentation, APA applications, and compliance.
Contact us today to get started!
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