By Savvas Georgiou, Head of Tax Compliance, Cyprus
In 2022, Cyprus introduced new transfer pricing regulations based on the OECD Transfer Pricing Guidelines. These regulations apply for the tax years 2022 and onwards, with the first deadline in February 2025 for companies with related party transactions.
In this article, we’ll outline the provisions of the new transfer pricing legislation in Cyprus and explore the obligations of Cyprus tax residents to ensure compliance.
Transfer pricing regulations in Cyprus
In June 2022, the Cyprus Parliament introduced transfer pricing documentation requirements for Cyprus tax residents (and permanent establishments of non-tax residents) that have transactions with related parties. Transfer pricing documentation must provide support for the “arm’s length” principle.
The new regulations cover all transaction types between related parties exceeding certain thresholds per category of transaction and at the same time meet the newly introduced 25% relationship test. Categories include goods, services, IP-related, financing, and any other transaction type between controlled parties.
Taxpayers exceeding the €5,000,000 threshold for financing category and €1,000,000 for goods, services, IP, and other categories must prepare a complete Cyprus Local File. Taxpayers below these thresholds must still provide simplified transfer pricing documentation based on the provisions of tax circular 6/2023 (subject to conditions and exemptions).
Explicit penalties for non-compliance are in place, with regulations in effect from tax year 2022.
Transfer pricing documentation
According to the new regulations, the following transfer pricing documentation has been introduced:
- Local file: Contains documentation for any intercompany transactions where the local entity is engaged with related parties. The Local File applies to categories exceeding the relevant thresholds and meets the 25% relationship test. It should be updated annually
- Master file: Contains high-level information about the global business operations and transfer pricing policy of the multinational enterprise (MNE) group. The master file applies only to ultimate or surrogate parent entities of MNE groups with consolidated revenues over €750m. It should be updated annually
- Summarised Information Table (SIT): Contains a summary of all transactions with related parties and transfer pricing documentation (subject to conditions and exemptions). There is no threshold for SIT preparation, meaning that all related party transactions that meet the 25% relationship test should be included. It should be submitted annually
- Simplified transfer pricing documentation: Contains the minimum documentation requirements according to tax circular 6/2023 and covers any intercompany transaction that does not exceed the relevant thresholds and meet the 25% relationship test. It should be updated annually
Filing deadlines and penalties
The local file and master file should be prepared by the corporate income tax return submission deadline and presented to Cypriot tax authorities within 60 days of request. The SIT should be submitted electronically to Cypriot tax authorities with the same submission deadline as a corporate income tax return.
For the tax year 2022, the corporate income tax return filing deadlines are:
- 31 March 2024 for companies without SIT obligation
- 28 February 2025 for companies with SIT obligation
The penalty for non-submission of the SIT by the deadline is €500, but fines for failure to provide the local file or master file within 60 days of request are much steeper at €5.000 to €20.000, depending on the length of the delay.
Advanced Pricing Agreement (APA)
Further to the above, Article 33C was incorporated into Cypriot legislation allowing the taxpayers to apply for an APA regarding transactions in progress or future transactions. The APA determines in advance the transfer price and methodology of a transaction under review for a specific period of time. The timeline for Cypriot tax authorities to finalise an APA is between 10 – 24 months, and the applicability of an APA is set to four (4) years.
IQ-EQ’s expert tax team in Cyprus can assist with the transfer pricing documentation requirements and submissions in order to keep you fully compliant with the new provisions. Contact our team today.
About the author
Savvas is the Head of Tax Compliance Department of IQ-EQ Cyprus. He has over 20 years of tax experience, including 14 in Big Four firms, and he’s worked with a wide range of local and multinational corporations. Savvas has extensive expertise in both tax compliance and tax advisory services and more specifically in group reorganisations, tax due diligences, tax planning, international tax and transfer pricing. Savvas is a Fellow of the Association of Chartered Certified Accountants (FCCA), and also a long-standing member of the Institute of Certified Public Accountants of Cyprus (ICPAC).
