Main amendment

As part of the Cyprus tax reform, amendments have been introduced to Article 33 of the Income Tax Law, adjusting the thresholds for preparing a Cyprus Local File for transfer pricing documentation purposes.

The revised thresholds determine when taxpayers are required to maintain a Cyprus Local File documenting controlled transactions with related parties.

The new limits aim to simplify compliance for smaller transactions while maintaining documentation obligations for transactions of material value.

New transfer pricing thresholds

Under the amended provisions, a Cyprus Local File is not required where the value of controlled transactions with related parties does not exceed the following thresholds.

These thresholds apply to the aggregate value of transactions per category with related parties during the relevant tax year.

Where the relevant threshold is exceeded — or should have been exceeded based on the arm’s-length principle — the taxpayer must prepare a Cyprus Local File.

Practical impact

The increase in the thresholds represents a positive development, as it reduces the number of taxpayers required to prepare full transfer pricing documentation.

However, the practical impact may be limited, since taxpayers remain subject to minimum documentation requirements and must still demonstrate that transactions with related parties comply with the arm’s-length principle.

Therefore, even where a Local File is not required, companies should maintain sufficient documentation supporting the pricing of their controlled transactions.

Additional clarification on connected persons

The amendments to Article 33 also clarify the concept of connected persons for transfer pricing purposes.

In particular, a director or advisor of a company may be considered a connected person if that individual, either alone or together with related persons, holds voting rights of at least 50% in decisions of the board of directors, whether under the company’s articles of association or other authority granted by shareholders.

This clarification ensures that persons exercising substantial influence over corporate decision-making are appropriately captured within the transfer pricing framework.

Interaction with deemed dividend provisions

The law also clarifies that Article 33 does not apply to the use of company assets by a direct or indirect shareholder or a related person, where the shareholder has already paid Special Defence Contribution on a deemed dividend distribution relating to that use.

This provision aims to prevent double tax consequences where the same economic benefit has already been subject to taxation under the deemed dividend rules.

Commentary – Policy objective

The revision of the transfer pricing thresholds reflects a policy intention to focus compliance requirements on transactions of greater economic significance, while reducing the administrative burden on businesses engaged in smaller related-party transactions.

At the same time, the retention of minimum documentation requirements ensures that the Cyprus tax authorities can continue to assess whether transactions between related parties comply with the arm’s-length principle, which remains the cornerstone of the transfer pricing framework.

Related Rightax publication

For a broader explanation of the Cyprus transfer pricing framework and documentation requirements, this publication should be read in conjunction with our guide:

👉 Cyprus Transfer Pricing Documentation and Compliance