On 1 February 2024, the Cyprus Tax Department (“CTD”) issued a letter revising the thresholds for preparing a Local File for the tax year 2022. These changes aim to streamline compliance requirements and reflect the evolving needs of stakeholders.

Current Requirements

Under the Income Tax Law of 2002, as amended, Cypriot tax-resident persons and Permanent Establishments (PEs) of non-tax-resident entities are required to prepare a Local File if they engage in controlled transactions (i.e., transactions with related parties) during a tax year. This obligation applies when the cumulative amount per category exceeds or should have exceeded, based on the arm’s length principle, €750,000 across all categories of controlled transactions.

Proposed Increases in Thresholds

The Ministry of Finance, with support from key stakeholders, has proposed increasing the thresholds for Local File preparation to better align with current economic realities:

• Financial Transactions: The threshold is proposed to increase to €5 million. For loans, both the principal amount and accrued interest must be considered in determining whether the financial category exceeds this limit.
• All Other Categories: The threshold is proposed to increase from €750,000 to €1 million.

Tax Year 2022 – Applicable Local File Thresholds

The CTD has confirmed the following thresholds for the tax year 2022:

i) Financial Transactions: €5 million

ii) All Other Categories: €1 million

Circular 6/2023 – Documentation for Exempt Persons

The CTD has clarified that persons exempt from the obligation to prepare a Cyprus Local File must still comply with Circular 6/2023. They are required to maintain minimum Transfer Pricing documentation for controlled transactions that do not exceed the specified thresholds, ensuring adherence to Transfer Pricing requirements on an annual basis.

How George Kaimakliotis & Co Ltd Can Assist

Navigating these updated thresholds and newly transposed Transfer Pricing Documentation requirements can be complex. At George Kaimakliotis & Co Ltd, we are committed to helping our clients remain compliant and minimize risks. Our team can assist with the preparation of Transfer Pricing documentation, ensuring adherence to both local and international guidelines. Contact us today for expert guidance tailored to your specific needs.