Cyprus: Q&A On Cyprus' New Banking Laws

28 March 2013 - Below are answers to frequently asked questions about banking in Cyprus in the context of the current banking crisis.

Q.    Under what circumstances is the Deposit Protection Scheme activated?

A.    The Deposit Protection Scheme (DPS) is activated, inter alia, where:
 

(i)    The Central Bank of Cyprus (CBC) concludes that a particular member-bank is unable to repay its deposits for reasons relating to its financial position and it is foreseen that the bank will not be able to do so in the near future, or
(ii)    An order has been issued by a Court of the Republic of Cyprus for the liquidation of the particular bank, pursuant to the Companies Law


Q.    What is the maximum amount of coverage for each depositor?

A.    The maximum amount payable as compensation to a depositor, for the aggregate of his deposits with a particular bank, is €100.000 including accrued interest up to the date of maturity of the deposit or the date on which the deposit fell due and payable but was not repaid, or the date on which the member bank was determined as unable to repay its depositors (whichever comes first).

Q.    Are deposits held in the name of a particular person with different banks considered to be separate deposits for the purpose of calculating the compensation payable from the Deposit Protection Fund?

A.    Deposits in the name of a particular person, held with different banks, are considered to be separate deposits for compensation purposes.

Q.    What haircut is applicable to bank deposits held with credit institutions other than the Bank of Cyprus?

A.    In accordance with the final understanding made between the government of Cyprus and Eurogroup, no haircut is applicable to bank deposits held with banks or credit institutions other than the Bank of Cyprus.

Q.    Which deposits are covered by the Deposit Protection Fund?

A.    Deposits covered include all deposits held bynatural or legal persons with banks incorporated in the Republic of Cyprus, or with their branches operating in other countries, and all deposits with branches of banks incorporated outside the European Union. The categories of deposits which are excluded from coverage are the following:

(a)    Deposits by other banks held for own account and deposits of cooperative institutions whose main purpose is the carrying out of banking business.

(b)    Deposits of banks incorporated in other countries which are licensed to conduct banking business under the relevant legislation of a country otherthan the Republic of Cyprus.

(c)    Deposits by persons against which criminal proceedings have been instigated or for which a confiscation order has been made, under the Prevention and Suppression of Money Laundering Activities Law or a corresponding law of another country.

(d)    Deposits by government departments, semi-governmentorganizations and local authorities.

(e)    Deposits by provident and pension funds.

(f)    Deposits by insurance companies either in their own name or in the name of trustees.

(g)    Deposits by collective investment companies.

Q.    Have any changes to the Cyprus tax system been made?

A.    No law has been passed as yet in relation to our tax system.

Q.    Does the lack of a bank account in Cyprus mean that a company incorporated in Cyprus is not resident in Cyprus for tax purposes?

A.    No, the test for tax residency is the management and control test and it is not mandatory for such purposes that the Cyprus company maintain a bank account in Cyprus.  

Q.    Does Cyprus have adequate law to facilitate the transfer out of companies to another jurisdiction?

A.    Yes, a Cyprus company may, if the laws of a country or jurisdiction so permit, and upon having obtained the prior consent of the Registrar in Cyprus, submit an application to the competent authority of that country or jurisdiction in which it chooses to register for the purpose of continuing under the legal regime of the said country or jurisdiction.

Q.    In the case of the Laiki Bank and the Bank of Cyprus how quickly will the DPS be applied?

A.    Reimbursement should take place within 20 days, in line with the EU Directive 94/19/ EC.  

Q.    Are correspondent accounts at Laiki Bank affected?

A.    Yes, all accounts are affected by the Resolution of the Laiki Bank

Q.    Did the government have the legal right to close the banks and other credit institutions on days which they are normally open for business?

A.    Yes, in accordance with section 69 of the Central Bank of Cyprus Laws, notwithstanding anything contained in the Bank Holiday Law in force for the time being, the Minister may, if he deems it that such action is in the public interest, declare by a notice published in the Official Gazette of the Republic that certain days shall be observed as special bank holidays or as days during which no transactions between the banks and the public shall take place.

Q.    How is the amount of compensation payable to depositors determined?

A.    The amount of any liability of a depositor to the bank in respect of credit facilities granted by the bank and any other counterclaim of the bank in respect of which a right to set off exists shall be deducted from the total amount of the liability of a bank to any depositor.

Q.    Are deposits held in currencies other than the euro covered?

A.    The DGS covers deposits in all currencies. In the case of deposits denominated in a currency other than Euro, for the purposes of calculating the amount of compensation, the foreign exchange reference rate of the relevant currency against euro as specified by the European Central Bank at the close of business of the date on which the deposits were rendered unavailable shall be used.

Q.    Where a person maintains joint accounts with other persons and, also, accounts with debit balances, how is the amount of compensation determined?

A.    In the case where two or more persons are jointly entitled to a deposit, for the purposes of compensation, each of them shall be treated as having a separate deposit of an amount calculated by dividing the credit amount in the account to which they are jointly entitled by the number of persons so entitled, unless specific evidence or special contractual terms determining the particular amount belonging to each of the beneficiaries of the joint account so exist. In the case of a deposit to which two or more persons are entitled as members of a partnership, or a deposit which belongs to an association or any union of persons with or without legal personality, the deposit shall be treated as a single deposit for the purposes of calculating the amount of compensation.

Q.    Are deposits held by an individual considered to be separate from deposits held in the name of a legal person i.e. a person established as a separate legal entity, in which that particular individual has an interest as holder of share capital?

A.    Companies are separate legal entities, independent of the shareholders. Legal entities and shareholders are entitled to separate compensation provided they do not fall within the categories of deposits excluded from compensation.

Q.  What legal avenues are available for consideration?
 
A.  An affected party may consider protecting its legal rights. Cyprus is a signatory to the most important multilateral treaties relating to foreign investment; (i) the Energy Charter Treaty, the provision of which protect investors and their investments from political risks involved in investing into a foreign country such as expropriation etc; (ii) the Multilateral Investment Guarantee Agency, which offers insurance to cover risk such as transfer restriction; government expropriation; and civil disturbance; and (iii) the International Centre for Settlement of Investment Disputes a forum providing facilities for the resolution of disputes between eligible parties through conciliation or arbitration. Cyprus is also a party to numerous bilateral investment treaties governing issues relating to investments carried out by nationals of one contracting state in another with countries such as Armenia, Belarus, Belgium, Luxemburg, Bulgaria, China, Czech Republic, Egypt, Greece, Hungary, India, Lebanon, Malta, Poland, Romania, Seychelles and Serbia.

Q.    Are corporate structures affected by the current situation in Cyprus?

A.    Corporate structures are not affected by the banking crisis. Holding structures in particular which are the most popular type of Cyprus structures remain unaffected as tax on dividends and treaty extraction and withholding taxes remain unchanged. Cyprus companies may operate bank accounts out of Cyprus without implication on their tax resident status in Cyprus.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.