2026 Transfer Pricing and Tax Loss Update
This historical article refers to the position before the current transfer-pricing framework and the Cyprus Tax Reform effective from 1 January 2026. Arm’s-length transfer-pricing rules and documentation requirements now apply to related-party transactions. Qualifying tax losses may generally be carried forward for seven years, while group relief may be available separately subject to the applicable conditions.
Before Implementation
This guide assumes the group has already assessed Cyprus as a headquarters location. Before filing, confirm the intended functions, decision-makers, regulated activities, employee population, premises, banking and payment needs, and the tax position in every affected jurisdiction.
The Foreign Interest Companies Scheme
In 2022 the Government of Cyprus introduced the Foreign Interest Companies Scheme, under which Cyprus-registered entities can employ third-country (non-European) nationals to live and work in Cyprus through a fast-track process administered by the Business Facilitation Unit of the Migration Department.
Eligibility Criteria for Companies
The following categories of entity are eligible to register as a company of foreign interests:
- Cyprus private entities in which at least 50% of ownership is held by foreign third-country (non-European) persons, confirmed by an affidavit of a director
- No minimum capital requirements (the previous EUR 200,000 minimum share capital has been abolished)
- Public companies registered on any stock exchange
- International Business Companies (formerly offshore) previously operating under the Central Bank of Cyprus
- Cypriot shipping companies
- Cypriot high-tech and innovative companies
- Cypriot pharmaceutical, bio-genetics and biotechnology companies
- Cypriot companies owned by persons holding Cypriot citizenship obtained on economic criteria
- Cypriot companies less than 50% owned by third-country nationals that nevertheless meet the EUR 200,000 foreign participation threshold
Substance and Employment Requirements
Eligible entities must hold independent offices or premises in Cyprus to satisfy the legal substance requirement.
A 70:30 ratio applies: the maximum number of third-country nationals is set at 70% of total employees over a five-year period from the date of registration as a foreign interest company. If the requirement of 30% Cypriot employees is not met, the Business Facilitation Unit re-assesses the position after five years on a case-by-case basis.
Highly Skilled and Non-Highly Skilled Personnel
The scheme distinguishes between two categories of personnel, each with its own conditions:
- Highly skilled personnel: a minimum gross monthly salary of EUR 2,500; a university diploma, degree or equivalent qualification, or confirmation of at least two years of relevant experience; an employment contract of at least two years; and work permits issued for up to three years. Their families gain immediate free access to the labour market once the employer has obtained the relevant permit.
- Non-highly skilled personnel: employment of third-country nationals as support staff is permitted provided their number does not exceed 30% of all support staff and the contract is duly ratified by the competent authority. Salaries follow existing legislation and work permits are issued for up to three years.
Tax Incentives
Relocating to Cyprus unlocks a comprehensive suite of corporate and personal tax incentives:
- Non-domicile status for individuals present in Cyprus for 183 days, or 60 days (provided they do not spend more than 183 days elsewhere), allowing tax-free distribution of dividend and interest income and exemption on gains from the disposal of securities for 17 years
- A 50% exemption from personal income tax for up to 17 years for qualifying first employment in Cyprus with annual remuneration over EUR 55,000, subject to the applicable eligibility conditions
- Corporation tax on net profits at a competitive rate of 15%
- Tax-exempt dividend income and no taxation on profits from the disposal of securities, shares, bonds, derivatives and stocks
- A Notional Interest Deduction on newly introduced paid-up capital
- A wide double tax treaty network with zero or low withholding tax rates, and no withholding tax on dividends, interest or royalties paid to non-residents
- An 80% exemption on qualifying intellectual property profits for assets developed after 30 June 2016 (the IP Box)
- Arm’s-length transfer-pricing rules and documentation for related-party transactions, with qualifying tax losses generally carried forward for seven years
- No capital gains tax except a 20% charge on gains from immovable property located in Cyprus
Action Plan in a Nutshell
Relocating a headquarters to Cyprus follows a clear sequence:
- Register a company in Cyprus in accordance with the legislative requirements
- Apply to the Business Facilitation Unit of the Migration Department as a company of foreign interests
- Obtain premises to house employees and satisfy the legal substance requirement
- Apply for a visa for each employee according to the eligibility criteria
How ASC Can Help
ASC advises on every stage of relocating to Cyprus — from company formation and Business Facilitation Unit registration to substance solutions, work and residence permits, and the tax structuring that underpins an efficient European headquarters. Contact us for tailored advice.