Legislation was enacted in April requiring credit institutions
operating in Cyprus to pay a levy of 0.095% on their customer
deposits from 2011 onwards. For the first two years, seven-twelfths
of the amounts raised by the levy will be used to reduce the
government deficit and the remaining five-twelfths will be used to
fund a financial stability fund. From 1 January 2013, the entire
amount raised by the levy will be credited to the financial
The amount payable in any year will be calculated on the basis
of customer deposits as at 31 December of the preceding year. No
levy will be imposed on inter-bank deposits. The levy will be
Cyprus banks in respect of their banking activities in Cyprus
(overseas branches and subsidiaries will not be subject to the
the Cyprus operations of foreign (EU and third-country) banks
and credit institutions; and
co-operative credit institutions.
The levy will be limited to 20% of the taxable profit for the
year in which it is paid. It will not be deductible for the purpose
of calculating taxable profits but it will reduce the amount of
profits subject to deemed dividend distribution.
The declaration of taxable deposits on the preceding 31 December
must be made by 31 March each year, and the levy will be collected
in four equal instalments at the end of each quarter, starting 31
March. The declaration of taxable deposits may be revised up to 31
December. For 2011, the declaration must be submitted and the first
instalment paid by 31 May 2011.
The Commissioner of Income Taxes has the power to raise
assessments for the levy and to collect it from banks.
The tax authorities are required to issue final income tax
assessments within six months from the date the corporate income
tax return is submitted and any overpayment above the 20% limit
must be refunded within a month after the issue of the final income
At this stage the regulations for the establishment and
operation of the Financial Stability Fund have not been finalised.
They must be issued within six months from the date the law comes
into force, failing which any levy collected must be returned to
the credit institutions concerned.
The cost of the levy is intended to fall on banks, not their
customers, and the law introducing the levy includes provision for
a fine of up to €100,000 to be imposed on credit
institutions which are found to have passed the cost onto their
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.
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