Cyprus Group Loss Relief in 2026: The 75% Group, Current-Year Surrender and the EU Edge Cases

Group loss relief is one of the most valuable — and most misunderstood — features of Cyprus corporate tax. Used correctly it lets a group net a loss in one company against profit in another and pay 15% tax only on the consolidated result. Used carelessly, it produces rejected claims, reopened assessments and surprise audit costs. This guide walks through the 2026 rules under Article 13 of the Income Tax Law, focusing on the four places practitioners see claims fail: the 75% test, the current-year-only limit, interposed foreign companies, and the narrow EU cross-border route.Article 13, Income Tax Law N.118(I)/2002

What is Cyprus group loss relief in 2026?

Group loss relief allows a Cyprus tax-resident company that makes a tax loss in a year to surrender that loss to another Cyprus tax-resident company in the same 75% group, which then deducts it from its own taxable profit of the same year of assessment.It is a within-year, company-to-company transfer of losses — not a consolidated tax return, and not a transfer of cash.

The economics matter more than ever after the 2026 reform. With the corporate income tax rate raised to 15% from 1 January 2026, a loss that would otherwise sit idle in a dormant or start-up entity is worth 15 cents of tax for every euro it shelters in a profitable sister company.Income Tax (Amendment) Law 2025 — 15% corporate rate from 1 Jan 2026The relief does not change how much profit the group earns; it changes which company is taxed and when, which is why it sits alongside carry-forward as a core planning tool in our Cyprus corporate tax guide.

Two structural limits define the whole regime. First, both companies must be Cyprus tax resident (the cross-border exception in the EU section below is deliberately narrow). Second, only the loss of the currentyear of assessment can move — a point that catches out founders who assume accumulated losses can be reshuffled around the group at will.Article 13(4)–(8), Income Tax Law N.118(I)/2002

How is the 75% group defined?

A group exists where one company is a 75% subsidiary of the other, or where both are 75% subsidiaries of the same third company. The 75% test is not just about voting shares — it also requires entitlement to at least 75% of distributable profits and of the assets available on a winding up.

In other words, three limbs must all be satisfied for a company to be a 75% subsidiary of another:

• at least 75% of the ordinary share capital carrying voting rights is owned directly or indirectly by the other company;
• the other company is beneficially entitled to at least 75% of the profits available for distribution to equity holders; and
• the other company is beneficially entitled to at least 75% of the assets available for distribution to equity holders on a winding up.

The “directly or indirectly” wording is what makes real structures workable: a Cyprus parent that holds a Cyprus subsidiary through one or more intermediate companies can still meet the test, as long as the effective look-through holding stays at or above 75% at each relevant level. Two Cyprus sister companies held 75% or more by a common parent are equally within the group.Article 13, Income Tax Law N.118(I)/2002

Why can only current-year losses be surrendered?

Group relief is confined to the loss of the current year of assessment. Losses a company has carried forward from earlier years cannot be surrendered to a fellow group member — they stay locked to the company that incurred them and can only be used against that same company's future profits.

This is the single most common misconception. A group with a subsidiary sitting on years of accumulated losses often assumes those losses can be “moved” to a newly profitable entity. They cannot. Only the loss arising in the very year of the claim can be surrendered, and it must be set off against the claimant's profit of the corresponding year.

There is also an ordering rule on the claimant's side. A company must first absorb its own brought-forward losses against its taxable income before it can accept another member's current-year loss. And on the surrendering side, the company gives up the loss it would otherwise have carried forward — so the decision is really about timing: use the loss now, in a sister company, or keep it for your own future profits. The reform's extended carry-forward window (longer than the previous five-year cap) makes that trade-off less urgent than it once was; the mechanics of carrying losses forward are covered in the companion piece on Cyprus corporate tax losses.Article 13, Income Tax Law N.118(I)/2002 (as amended 2025)

Do non-Cyprus companies in the chain break the group?

No — an interposed non-Cyprus tax-resident company in the ownership chain does not, by itself, break group-relief eligibility, provided that company is tax resident in another EU member state or in a country with which Cyprus has a double tax treaty or a tax-information- exchange agreement.

This is a deliberate and commercially important relaxation. Cross-border groups frequently hold their Cyprus operating and holding companies through an intermediate entity in another jurisdiction. Rather than requiring an unbroken Cyprus-only chain, the law looks through a qualifying foreign intermediary. The two companies actually claiming and surrendering the loss must still be Cyprus tax resident; it is only the connecting company or companies that may sit abroad.Article 13, Income Tax Law N.118(I)/2002

The qualifying-country condition is where diligence is needed. An intermediary in an EU member state qualifies automatically. An intermediary in a third country qualifies only if Cyprus has a treaty or an exchange-of-information arrangement with it. Interpose a company in a jurisdiction with neither, and the look-through fails — the two Cyprus companies are then treated as not grouped for relief purposes, even though the ultimate ownership percentage is unchanged.

Can you import an EU subsidiary's losses (Marks & Spencer)?

Only in narrow, final-loss circumstances. A Cyprus tax-resident company can claim the current-year losses of a group company that is tax resident in another EU member state — but only after that subsidiary has genuinely exhausted every possibility of using those losses in its own state of residence, and in the state of any intermediate EU holding company.

This provision transposes the Court of Justice of the European Union's landmark ruling in Marks & Spencer plc v Halsey, which held that a member state may generally restrict cross-border loss relief, but that the restriction becomes disproportionate where the non-resident subsidiary has exhausted the possibilities of using its losses at home and there is no possibility of them being used there in future periods.CJEU, Case C-446/03 Marks & Spencer v Halsey (2005)

In practice, importing an EU subsidiary's losses is an evidence-heavy exercise, not a planning default. You must be able to demonstrate that the losses are genuinely “final” — typically because the subsidiary is ceasing activity or being wound up with no future profits and no third party able to use the losses — and that they have been quantified under Cyprus tax rules. Because the subsidiary must be EU-resident and the losses truly terminal, this route applies far more rarely than the ordinary Cyprus-to-Cyprus surrender, and it should never be assumed without a documented final-losses analysis.

How is a group-relief claim made and timed?

Group relief is claimed through the corporate tax return of the claimant company for the relevant year, supported by matching surrender by the loss-making company. As a rule both companies must be members of the same group for the whole year of assessment, with a statutory exception for a company incorporated by its parent during the year.

• Whole-year membership. The surrendering and claimant companies should generally be in the same 75% group throughout the year of assessment for which the loss is claimed.
• Mid-year incorporation exception. Where a company is incorporated by its parent during the tax year, it is treated as a group member for the whole of that year, so a subsidiary created part- way through the year is not disqualified.Article 13, Income Tax Law N.118(I)/2002
• Same year of assessment.The loss surrendered and the profit it shelters must belong to the corresponding year — there is no carry-back of the surrendered loss to earlier years.
• Filed positions.Both companies' returns must be consistent, and the underlying figures come from audited financial statements filed with the Tax Department.Assessment and Collection of Taxes Law N.4/1978

What edge cases trip companies up?

Most rejected claims fail on one of five points: brought-forward losses mistaken for surrenderable losses, a broken 75% chain, a non-qualifying intermediary jurisdiction, a residence mismatch, or an assumed cross-border import that is not a genuine final loss.

1. Accumulated-loss confusion. Trying to surrender prior- year losses. Only current-year losses move; everything else stays with the company and is used through carry-forward.
2. Sub-75% or diluted holdings.A shareholders' agreement, preference shares, or an option that erodes voting rights or profit entitlement below 75% at any tested level quietly breaks the group.
3. Wrong intermediary. An interposed company in a non-EU, non-treaty, non-exchange jurisdiction breaks the look-through even if the economic ownership is unchanged.
4. Residence mismatch. Both the surrendering and claimant company must be Cyprus tax resident. Management-and-control drift that moves residence abroad removes a company from the domestic claim.
5. Assumed cross-border relief.Treating an ordinary loss-making EU subsidiary as importable. Without a documented final- losses analysis under the Marks & Spencer test, the claim is not available.

Does a group-relief claim force an audit?

In practice, yes. A group-relief claim rests on the audited figures of both companies, so it effectively requires a full statutory audit rather than the lighter review engagement available to some small companies.

Group-relief positions are exactly the kind of claim that removes a company from the small-company review option: the numbers must be auditable, the intercompany relationships documented, and the losses quantified under Cyprus rules. That is why group loss-relief sits on the list of claims that trigger a full ISA audit in our Cyprus audit requirementsguide. Budget for the audit when you plan the claim, not after — the tax saved usually dwarfs the audit fee, but only if the claim survives scrutiny.