Cyprus has lowered the minimum return on certain related-party financing and raised the maximum borrowing cost on others, with the revised rates applying from the 2026 tax year onwards.
The Cyprus Tax Department has revised the minimum and maximum return rates used in its transfer pricing simplification measures, through Circular 5/2026 issued on 12 October 2026.
The circular updates the rates set out in Circular 6/2023, with the aim of aligning reference rates with functional risk profiles and current financial market conditions. The measures apply to taxpayers exempt from the obligation to maintain a Cyprus Transfer Pricing Local File under Article 33(9)(a) of the Income Tax Law.
Summary of revised rates
| Category | Circular 6/2023 | Circular 5/2026 |
| Paragraph 14: financing funded by financial instruments (Part D.1) | 2.5% pre-tax minimum return (flat rate) | 0.5% or 2.0% pre-tax minimum return, depending on conditions |
| Paragraph 18: financing funded by equity (Part D.2) | Borrower country 10-year government bond yield + 3.50% pre-tax | Borrower country 10-year government bond yield + 2.25% pre-tax |
| Paragraph 25: financing used in the business (Part D.3) | Cyprus 10-year government bond yield + 1.50% pre-tax (maximum cost) | Cyprus 10-year government bond yield + 1.75% pre-tax (maximum cost) |
Financing funded by financial instruments (Paragraph 14)
Circular 6/2023 applied a flat 2.5% pre-tax minimum return regardless of financial capacity. Circular 5/2026 replaces this with two rates:
- 0.5% pre-tax minimum return: applies if the tested entity does not control the transaction risks and lacks the financial capacity to bear them.
- 2.0% pre-tax minimum return: applies to all other cases under Paragraph 14.
Equity-funded financing (Paragraph 18)
For equity-funded outbound financing, the margin over the borrower country’s 10-year government bond yield falls from 3.50% to 2.25% pre-tax.
Financing used in the business (Paragraph 25)
This paragraph sets the maximum allowable borrowing cost. The margin over the Cyprus 10-year government bond yield rises from 1.50% to 1.75% pre-tax.
Foreign currency loans
For Paragraphs 18 and 25, where the transaction is in a currency other than the borrower’s domestic currency, taxpayers must use the 10-year government bond yield of that state in the loan currency, as published on the Tax Department website.
If that yield is unavailable, the taxpayer must contact the Intra-Group Transactions Unit under Article 33(7) of the Income Tax Law to determine the appropriate benchmark rate.
Unchanged provisions
The 5.0% profit mark-up on relevant costs for low value-adding services (Part D.4, Paragraph 31 of Circular 6/2023) remains unchanged. All other terms, rules and requirements of Circular 6/2023 remain in full force.
Taxpayers that rely on the simplification measures should therefore apply the revised rates to their financing transactions from the 2026 tax year onwards. The new rates will stay in place until the Tax Department issues its next official revision.
