CYPRUS Law and Practice Contributed by: Stella Strati, Patrikios Legal
9.10 Transfer Pricing and IP Taxation New transfer pricing rules were introduced in 2022 and were applicable from 1 January 2022 (as explained in 4.4 Transfer Pricing Issues for Inbound Investors ). Such rules include the requirement for related parties to maintain documentation files in relation to intra- group transactions. The applicable thresholds are mentioned in 4.4 Transfer Pricing Issues for Inbound Investors . Pursuant to BEPS Action 5: Harmful Tax Practices, Cyprus has abolished the old IP box regime and has introduced new rules regarding tax benefits granted towards genuine IP activity, as per the nexus approach. The current applicable IP tax regime is explained in 2.2 Technology Investments . 9.11 Country-by-Country Reporting and Transparency Provisions In general, Cyprus has implemented a number of OECD and BEPS recommendations to promote trans - parency. As per the BEPS Action 13: Final Report, Cyprus has implemented CbC reporting by amending the applicable tax legislation pursuant to the Assess - ment and Collection of Taxes Law (Exchange of Infor - mation in the context of the Multilateral Competent Authority Agreement on the Exchange of Country-by- Country Reports) Decree of 2017. Generally, the OECD guidance on the implementa - tion of CbC reporting issued from time to time is used to interpret the Cyprus CbC reporting legislation for the purposes of ensuring a consistent and standard approach to CbC reporting. CbC reporting require - ments apply in Cyprus as of 1 January 2016. However, in the event of conflict, the Cyprus’ CbC reporting legislation takes precedence. 9.12 Digital Economy Businesses Cyprus has taken steps to update its digital economy taxation. Pursuant to the 2025 tax reform and applicable as of 1 January 2026, profits from the sale, gift, exchange, or use of crypto-assets (as defined by the EU’s Markets in Crypto-Assets Regulation (MiCA) covering digital representations of value or rights stored and trans - ferred via distributed ledger technology) are taxed at
Moreover, a group equity “escape” or “carve-out” is provided. If the Cyprus-resident company is part of a consolidated group for financial reporting purposes, the taxpayer may be given the right to fully deduct its EBCs – provided that the ratio of its equity over its total assets is equal to (or even up to 2% lower or higher than) the equivalent ratio of the group. 9.8 Controlled Foreign Corporation Reform As already mentioned in 9.7 Interest Deductibility and Territorial Tax Regime , Cyprus does not have a ter - ritorial tax regime. However, it has implemented the CFC rule, as part of the wider implementation of the ATAD. The CFC rule has been explained in 6.5 Con- trolled Foreign Corporation-Type Rules . This CFC rule applies as from 1 January 2019 to both Cyprus tax-resident companies and non-Cyprus tax-resident companies having a permanent establishment in Cyprus. The CFC rule results in the re-attribution of the income of a low-taxed controlled non-Cypriot sub - sidiary to its parent company in order to avoid revenue diversion to a jurisdiction with a more favourable tax regime. 9.9 Anti-Avoidance Rules As previously mentioned in 7.1 Overarching Provi- sions , a general anti-avoidance rule is applicable in Cyprus as of 1 January 2019. Also, further to the signing of the MLI, Cyprus has opt - ed for the principal purpose test. Such test is incorpo - rated in the latest double taxation conventions (DTCs) entered into by Cyprus. Specifically, the DTT between Cyprus and the Netherlands signed on 1 June 2021 provides that a benefit under the relevant DTC shall not be granted if it is reasonable to conclude – having regard to all relevant facts and circumstances – that obtaining the benefit was one of the principal pur - poses of any arrangement or transaction that resulted directly or indirectly in such benefit. The only DTC entered into by Cyprus that includes the “limitation of benefits” test is the one with the USA. These rules do not have any impact on inbound and outbound investors operating through Cyprus entities, owing to the fact that various incentives and benefits offered by the Cypriot tax system apply irrespective of the existence of any DTC.
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