Cyprus Transfer Pricing 2026: New Intra-Group Loan Rates

Cyprus transfer pricing 2026 brings revised simplified rates for selected intra-group financing, with eligibility and documentation still decisive.

Grigoris Aivazidis · Lawyer, AVZ Law Office · Legal Briefing · 16 October 2026

Cyprus transfer pricing 2026 includes a targeted change for certain related-party financing arrangements. On 12 October 2026, the Tax Department issued Circular 5/2026, revising specified minimum or maximum rates in paragraphs 14, 18 and 25 of Circular 6/2023, with the revised rates applying from tax year 2026. The new figures matter to groups using the Department’s simplified measures, but they do not remove the need to establish that the transaction fits the relevant category and conditions.

The update should be read alongside two separate developments. First, the 2026 tax reform raised the thresholds that determine when a Cyprus Local File is required. Second, falling below a Local File threshold does not mean that a controlled transaction can be priced without support or omitted from applicable reporting. This article separates those questions and explains what a Cyprus company should review before using the revised rates.

Cyprus transfer pricing 2026: what Circular 5/2026 changes

The Tax Department describes Circular 5/2026 as a revision of rates in paragraphs 14, 18 and 25 of its earlier simplification circular. The relevant transactions are specified forms of related-party financing. The official Tax Department transfer-pricing circulars page lists the 2026 update and the underlying Circular 6/2023. The main revised rates are:

Back-to-back lending where the Cyprus intermediary does not control the relevant risk and cannot bear a loss: a minimum pre-tax return of 0.5%, replacing the previous 2.5% minimum.
Back-to-back lending where the Cyprus intermediary takes the relevant risk: a minimum pre-tax return of 2%, replacing the previous 2.5% minimum.
Loans advanced to related parties from the lender’s own funds: a minimum rate based on the 10-year government bond yield of the borrower’s country, plus 2.25%. The former margin was 3.5%.
Related-party borrowing used in the borrower’s business: a maximum rate based on the 10-year Cyprus government bond yield, plus 1.75%. The former margin was 1.5%.

Where the loan is denominated in a currency different from the borrower’s local currency, use the relevant 10-year government bond yield for the same country in the loan currency where the Tax Department publishes it. If no such yield is published, the rate should be agreed with the Department’s Intra-group Transactions Unit. The simplified percentages are stated before tax and are applied using the circular’s calculation method for the relevant average loan balance.

The 5% mark-up for qualifying low-value-adding intra-group services is not one of the rates amended by Circular 5/2026. It should not be presented as a new rate or as part of the financing changes.

Which companies may use the simplified financing rates?

Circular 6/2023 sets out simplification measures for specified controlled transactions where the taxpayer is exempt from preparing a Cyprus Local File, subject to the circular’s conditions. The Tax Department’s guidance on simplification measures describes the framework. The simplified approach should not be applied mechanically where reliable internal comparables are available. A company should first identify the actual transaction, the parties, the source of funds, the purpose of the financing and who controls and bears the relevant risks.

The Local File thresholds changed from tax year 2026. Under the amended framework, the relevant annual thresholds are €10 million for financing transactions, €5 million for transactions in goods, and €2.5 million for other categories of controlled transactions. The test uses the annual aggregate arm’s-length value for each category under the statutory rules. These thresholds determine the Local File requirement. They do not disapply the arm’s-length principle or automatically remove Summary Information Table and record-keeping obligations. The current text of Article 33 of the Income Tax Law, as amended, should be checked for the relevant tax year and transaction category.

Even when no Local File is required, the company may still have a Summary Information Table obligation and must retain support for its controlled transactions. The Tax Department explains who must submit the Summary Information Table for controlled transactions. A Local File exemption should therefore not be described as a general exemption from transfer-pricing compliance.

A lower simplified rate is not an automatic safe harbour

The revised figures simplify the pricing analysis for defined circumstances. They do not make every intra-group loan eligible, and they do not allow a company to choose a rate without examining how the financing actually works.

For back-to-back arrangements, the distinction between a 0.5% and a 2% minimum depends on the intermediary’s actual functions, control over risk and capacity to bear losses. It is not enough for a contract to say that the company does not take risk if its people make the lending decisions, monitor borrowers or absorb losses in practice. The documents, conduct and financial capacity should support the category relied on.

For loans funded from the lender’s own resources, the company should preserve evidence of the source and use of funds, the borrower and currency, the applicable government bond reference, the margin and the calculation. For related-party borrowing, the file should show the business purpose, loan terms, calculation of the permitted maximum and actual interest charged. A tax authority may examine the transaction’s substance and the company’s records, not only the rate printed in an agreement.

The ordinary transfer-pricing principle remains relevant. The Tax Department identifies Article 33 as the governing Cyprus provision and states that the arm’s-length principle is interpreted with reference to the OECD Transfer Pricing Guidelines. Simplification should make a compliant transaction easier to document. It should not be used to retrofit a commercial explanation after the price has already been selected.

What companies should review before applying the 2026 rates

Map each financing transaction. Identify the lender, borrower, related-party relationship, direction of funds, currency and business purpose.
Confirm the correct category. Distinguish a back-to-back loan from funding advanced out of own funds and from a company’s borrowing for business use.
Test the Local File threshold. Apply the 2026 threshold for the relevant category and aggregate transactions as required by the law.
Check the circular’s conditions. For a back-to-back loan, document who controls credit and other relevant risks and whether the company could bear a loss.
Calculate the rate from the correct benchmark. Keep the reference yield, reference date, currency and margin calculation together.
Complete remaining reporting and record-keeping. Check the Summary Information Table, the tax return and minimum supporting documentation obligations separately from the Local File question.
Review the contractual and accounting position. Confirm that agreements, board approvals, ledgers, interest accruals and payments are consistent with the transaction as carried out.

Why intercompany loans matter when a Cyprus company is sold

A related-party loan can affect a sale even where the buyer is acquiring shares rather than buying assets. The outstanding principal and accrued interest may affect the debt and cash adjustments used to arrive at the equity value. The interest terms also influence forecast cash flows, the company’s tax position and the buyer’s due-diligence review. Interest expense is not the same as EBITDA, but financing costs and debt balances can materially affect the value attributed to the shares.

A seller preparing a company for market should reconcile every group balance, confirm whether interest has been charged and paid as agreed, and make sure the transfer-pricing records support the historic treatment. A rate amendment for 2026 does not by itself rewrite an existing loan contract or establish the right treatment for earlier years. Contractual changes, past tax positions and any proposed refinancing should each be assessed on their own facts.

For a buyer, the question is not simply whether a company used a rate shown in a circular. The buyer will want to understand whether the financing falls within the simplified category, whether eligibility conditions were met, whether the correct rate was used for each year and whether the reporting and evidence are complete. A well-supported balance is easier to price and negotiate than an unexplained related-party liability.

Commentary by Grigoris Aivazidis

The practical value of Circular 5/2026 is that it gives eligible groups a clearer and, in some cases, less costly route for pricing related-party financing. But the rate is only one part of the analysis. The real work is understanding who supplied the money, who made the decisions, who controlled the risk and whether the company could bear the consequences of that risk.

“A simplified rate is useful when it reflects the transaction that actually took place. It is not a substitute for understanding the financing. If the company’s agreements, conduct and accounts tell different stories, changing the percentage will not resolve the underlying problem.”

That distinction also matters when a business is being valued or sold. Intercompany financing can affect the net-debt calculation, the equity price and the buyer’s view of tax exposure. These records should be reviewed before the sale process begins, while there is still time to correct inconsistencies properly and explain the commercial history.

For advice on a Cyprus related-party financing or transfer-pricing issue, contact AVZ Law Office through our Private Enquiry page.