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 stability fund.
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 payable by:
- Cyprus banks in respect of their banking activities in Cyprus (overseas branches and subsidiaries will not be subject to the levy);
- 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 tax assessment.
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 customers.
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.
