CYPRUS Trends and Developments Contributed by: Marios Palesis and Theodora Charalambous, Kinanis LLC
Introduction In 2026, Cyprus entered a period of substantial change, following the enactment of significant tax reform measures on 31 December 2025. These reforms were introduced with the objective of promot - ing economic expansion and reinforcing tax compli - ance, with the majority of the new provisions coming into effect on 1 January 2026. Among other legislative changes, the reform includes amendments to the Income Tax Law of 2002 (Law 118 (I)/2002), which governs, inter alia, the transfer pricing provisions in Cyprus. The Transfer Pricing Framework in Cyprus The transfer pricing provisions of the Income Tax Law are set out in Article 33, which defines related parties and codifies the arm’s length principle. Article 33 (1) provides that where: • (a) an enterprise in the Republic participates directly or indirectly in the management, control, or capital of an enterprise of another person; or • (b) the same persons participate directly or indi - rectly in the management, control, or capital of two or more enterprises, and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations that differ from those which would be made between independent enterprises, then any profits or benefits which would have accrued to one of the enterprises but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly. Article 33 (2) further provides that paragraph (1) also applies to any transactions between connected per - sons. Key Amendments Under the 2026 Reform As part of the recent tax reform, a new paragraph has been introduced to Article 33 (2). This paragraph clarifies that paragraph (1) does not apply to the use of company assets by a direct or indirect shareholder, or by a person connected with such a shareholder, pro - vided that the shareholder has paid Special Defence
Contribution on a deemed dividend distribution arising from the use of those specific assets, in accordance with Article 3A(2)(a) of the Special Defence Contribu - tion for the Defence of the Republic Law. As part of the tax reform, Article 33 (4) has also been amended through the introduction of a new paragraph. Specifically, for the purposes of applying Article 33 (4) (a)(ii), a director or advisor of a company who, either alone or together with persons connected with them, holds ‒ pursuant to the company’s articles of associa - tion or other form of shareholder authorisation ‒ voting rights of at least 50% in relation to decisions taken by the board of directors, shall be deemed to be a person connected with the company. This amendment effectively broadens the definition of “connected persons” for transfer pricing purposes by capturing cases where control is exercised at board level through voting rights, even if no direct sharehold - ing threshold is met. Another significant amendment introduced by the tax reform relates to Article 33 (9), which governs the thresholds triggering the obligation to prepare a Cyprus Local File. This constitutes the second upward revision of the relevant thresholds since the introduc - tion of the transfer pricing documentation framework. The revised thresholds per category of controlled transactions are as follows: • Goods: EUR5 million (previously EUR1 million). • Services: EUR2.5 million (previously EUR1 million). • Royalties/licence fees and other intangibles: EUR2.5 million (previously EUR1 million). • Financial transactions: EUR10 million (previously EUR5 million). • Other transactions: EUR2.5 million (previously EUR1 million). The amendment therefore significantly increases the documentation thresholds across all transaction cate - gories, while maintaining differentiated limits depend - ing on the nature of the controlled transaction. The applicable threshold is assessed on an aggregate basis per category of controlled transactions, calcu - lated per tax year.
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