Cyprus Raises Local File Thresholds

Practical Implications for SMEs and Their Advisors

As part of its 2026 tax reform, Cyprus has increased the thresholds that trigger a full transfer pricing Local File obligation under the Income Tax Law. The changes are intended to better align documentation requirements with transaction materiality and risk.

For many SMEs, this means that a full Local File may no longer be required for certain categories of related-party transactions. However, the reform does not remove transfer pricing compliance obligations altogether.

What Has Changed?

From tax year 2026 onwards, a full Cyprus Local File is required only for transaction categories where the annual cumulative value of related-party transactions exceeds the following thresholds:

Transaction category	Local File threshold (per year)	Prior threshold
Financing transactions	EUR 10 million	EUR 5 million
Sale / purchase of goods	EUR 5 million	EUR 1 million*
Services, IP, royalties & other	EUR 2.5 million	EUR 1 million

*Previously, goods transactions were included within the general EUR 1 million threshold for non-financial transactions.

The thresholds apply per category and per tax year. A taxpayer may exceed the threshold in one category (triggering a Local File for that category only) while remaining below the threshold in others.

Why Were the Thresholds Increased?

The revised thresholds form part of Cyprus’ broader effort to modernise its tax framework and apply a more risk-based and proportionate approach to transfer pricing compliance.

In practice, the changes are intended to reduce disproportionate compliance costs for SMEs and allow lower-risk, lower-value arrangements to be supported through simplified documentation.

Are There Still Documentation Requirements Below the Thresholds?

Yes. The increased thresholds reduce the scope of full Local File preparation, but they do not eliminate transfer pricing documentation requirements.

1. Summary Information Table (SIT)

All Cyprus taxpayers with related-party transactions must prepare and submit a Summary Information Table (SIT) annually and file it together with the corporate tax return, reporting all related party transactions, regardless of value.

2. Simplified Transfer Pricing Documentation (Circular 6/2023)

Where transaction volumes fall below the Local File thresholds, Cyprus expects taxpayers to maintain simplified transfer pricing documentation. This documentation should be prepared contemporaneously and be available upon request by the tax authorities.

At a minimum, this typically includes:

• A brief functional analysis

• Entity characterisation (e.g. routine service provider, distributor, financing entity)

• A clear pricing method rationale

• Benchmarking or pricing support, where relevant to the transaction type

The objective is not to replicate a full Local File, but to demonstrate that pricing is arm’s-length and commercially rational.

Practical Takeaways

• Review related-party transaction volumes by category, annually, to determine whether a full Local File is required.

• Do not assume that falling below the thresholds means “no transfer pricing work.”

• Ensure the SIT is accurate and reconcilable to the statutory accounts.

• Maintain basic but credible transfer pricing support for all material intercompany arrangements.

The 2026 changes reduce documentation intensity for some — but not accountability. Cyprus still expects taxpayers to be able to explain and support their related-party pricing if asked.