Linkedin
Facebook
Email
more
Key Takeaway
From the 2026 tax year, Cyprus has revised the transfer pricing safe harbour rates for certain intra-group financing transactions. The updated rates relate to minimum returns for debt-funded financing, depending on risk control and financial capacity; a minimum return for equity-funded financing; and a maximum borrowing cost for certain related-party financing received and used in the business.
The Cyprus Tax Department has issued Circular 5/2026, revising the safe harbour rates applicable to certain intra-group financing transactions for transfer pricing purposes with effect from the 2026 tax year. The revisions amend the simplified measures that were originally introduced through Circular 6/2023 for taxpayers exempt from the obligation to maintain a Cyprus Transfer Pricing Local File.
Background
As part of Cyprus' transfer pricing framework, Circular 6/2023 introduced simplification measures applicable to specified financing transactions between related parties. These measures were designed to provide taxpayers with a practical mechanism for demonstrating compliance with the arm's length principle without the need for a detailed benchmarking analysis, provided certain conditions are met.
Following a review of market conditions and the practical application of the regime, the Tax Department has now updated the minimum and maximum acceptable returns under the safe harbour framework.
Key Changes
A. Financing to Related Parties Funded Through Debt Instruments
Under the previous framework, a minimum pre-tax return of 2.5% applied irrespective of the functional profile of the tested entity.
From the 2026 tax year:
- Where the tested entity does not control the relevant risks and does not have the financial capacity to assume such risks, a reduced minimum pre-tax return of 0.5% applies.
- In all other cases falling within the scope of the simplified measure, a minimum pre-tax return of 2% applies.
B. Financing to Related Parties Funded Through Equity
The minimum return has been revised from:
10-year government bond yield of the borrower's jurisdiction + 3.5% to 10-year government bond yield of the borrower's jurisdiction + 2.25%
C. Financing Received from Related Parties and Used in Business
The maximum borrowing cost has been revised from:
Cyprus 10-year government bond yield + 1.5% to Cyprus 10-year government bond yield + 1.75%
What Remains Unchanged?
The simplified measure applicable to low value-adding intra-group services remains unaffected. Specifically, the 5% profit mark-up on relevant costs continues to apply without modification. All other requirements and provisions of Circular 6/2023 remain in force.
RSM Cyprus Comment
The revised safe harbour rates reflect the Tax Department's ongoing efforts to align the simplification measures with current market conditions and practical transfer pricing considerations. Businesses relying on the Cyprus transfer pricing simplification framework should assess the impact of the revised rates on existing intra-group financing arrangements and ensure that financing structures continue to meet the applicable requirements from the 2026 tax year onwards.
Particular attention should be given to the functional analysis underpinning financing activities, as the revised regime now differentiates the applicable return based on the level of risk control and financial capacity demonstrated by the financing entity.
Key Questions on Cyprus Transfer Pricing Safe Harbour Rates
From the 2026 tax year, revised safe harbour rates apply to certain intra-group financing transactions under the Cyprus transfer pricing simplification framework. The applicable rate depends on the type of financing arrangement and, in certain cases, the functional profile of the tested entity.
Where the tested entity does not control the relevant risks and does not have the financial capacity to assume those risks, a minimum pre-tax return of 0.5% applies. In all other cases falling within the simplified measure, a minimum pre-tax return of 2% applies.
The minimum return is the 10-year government bond yield of the borrower's jurisdiction plus 2.25%.
The maximum borrowing cost is the Cyprus 10-year government bond yield plus 1.75%.
No. The 5% profit markup on relevant costs remains unchanged.
How RSM Cyprus Can Help
Our transfer pricing and tax specialists would be pleased to assist with assessing the impact of these developments, reviewing existing financing arrangements and supporting compliance with Cyprus tax obligations.
For personal consultation, you can contact our tax team.
