Cyprus Transfer Pricing 2026: Rules, Thresholds & Documentation

Cyprus transfer pricing rules apply the arm's-length principle to controlled transactions between related parties. From 1 January 2026 the Local File thresholds are higher, but the underlying pricing obligation remains: connected-party transactions must still be supportable on arm's-length terms, and minimum documentation can remain relevant even when a full Local File is not required.

2026 Local File thresholds

For tax years from 2026, the annual aggregate arm's-length-value thresholds for controlled transactions are €5 million for sale or purchase of goods, €10 million for financing transactions, and €2.5 million for services, IP licensing or royalties, and other transaction categories. The threshold is considered by transaction category, not simply by total intercompany activity.

Below the threshold does not mean no transfer pricing

The threshold determines whether the Cyprus Local File obligation applies to that transaction category. It does not replace the arm's-length principle. Groups below the Local File threshold should still maintain evidence proportionate to the transaction — for example agreements, functional analysis, pricing rationale, calculations and relevant comparables or supporting market data.

Choosing the right transfer pricing method

The method should follow the economically significant features of the transaction. Common methods include the Comparable Uncontrolled Price method, resale price method, cost plus method, Transactional Net Margin Method and profit split method. The correct method depends on the functions performed, assets used, risks controlled, contractual terms and the quality of available comparables.

Royalties, software and IP transactions

Software and IP structures need particular care. Legal ownership alone does not determine the return. The analysis should consider development, enhancement, maintenance, protection and exploitation functions, decision-making and risk control, the value of the IP, and the commercial terms of the licence. Transfer pricing should also be coordinated with any Cyprus IP Box nexus analysis so that the tax position, functional substance and intercompany agreements tell the same story.

Financing transactions

Intra-group loans and guarantees require analysis of the borrower's credit profile, debt capacity, currency, tenor, security, subordination, market conditions and realistic alternatives available to the parties. A single group-wide interest rate is not automatically arm's length for every borrower.

Our recommended annual process

1. Map all related-party transactions by category. 2. Confirm agreements and actual conduct match. 3. Perform or refresh the functional analysis. 4. Select and apply the most appropriate method. 5. Prepare benchmarking or other support. 6. Reconcile the TP result to the accounting records and tax return. 7. Complete the required Cyprus documentation and annual reporting.