Revised rules for intra-group loans through Cyprus

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Revised rules for intra-group loans through Cyprus

After years of negotiations between the Inland Revenue Department and the Institute of Certified Public Accountants of Cyprus, the Commissioner of Income Tax has clarified in writing the conditions that needs to be satisfied in back to back financing arrangements involving a Cyprus entity as intermediary company.

null

Giannos Ioannou

Cyprus Financing Companies (CFCs) are commonly used in international tax structuring mainly due to the wide range of tax related benefits they have to offer. The advantages that have made Cyprus a favourable financing company jurisdiction for investors and it is considered a major vehicle for international tax planning are based on two main reasons:

  • Firstly, due to the country's flexible tax system;

  • Secondly, the existence of the DDT between Cyprus and many countries that limits withholding taxes.

Diagram 1

null

According to the Commissioner, the minimum interest margins to be accepted by the Department of Inland Revenue would be determined based on the loan amount as shown in Table 1.

Interest free loan agreements would be subject to a deemed interest margin of 0.35% and shall apply irrespective of the loan amount.

The above margins are applicable for the tax years 2008 onwards. For the tax years 2003-2007 the acceptable margin is 0.3% irrespective of the amount and whether it is interest bearing.

The above margins apply when Cyprus companies are used as intermediary financial vehicles to finance other related or connected companies and the following conditions are satisfied:

  • The funds borrowed should be used within a six-month period;

  • The write off of any loans should not create any tax benefit or tax liability for the Cyprus company.

Table 1

Loan amount

Interest bearing loans

Interest free loans

EURO

%

%

Up to 50 millions

0.35

0.35

From 50 millions up to 200 millions

0.25

0.35

More than 200 millions

0.125

0.35


The above also applies when the funds are borrowed by a bank and the loan facility as guaranteed by other related or connected companies.

In line with the above, the use of Cyprus as a Financing Company minimises the tax implications which are further reinforced by the recent clarifications on the definition of minimum/maximum interest margin.

Intra-group loans by the use of an intermediary CFC minimises the tax luggage carried forward due to minimum margin frames and no withholding taxes on interest paid are imposed.

Giannos Ioannou (giannos.ioannou@eurofast.eu)

Eurofast Taxand, Cyprus

Tel: +357 22 699 222

Website: www.eurofast.eu

more across site & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article