Cyprus Approves Banking Levy

by Lorys Charalambous, Tax-News.com, Cyprus

25 April 2011

Cypriot lawmakers have approved legislation to introduce a permanent levy on the country’s banks, revenues from which will be siphoned into a ‘Financial Institutions’ Support Fund.’

Expected to generate EUR60m annually, a proportion of the levy in its first two years will contribute to efforts to tackle the nation's deficit, but from 2013 will wholly contribute towards a ‘Financial Institutions’ Support Fund’ to establish a buffer to protect the country against financial shocks.

The levy will impose a tax amounting to 0.095% on deposits of Cypriot banks (excluding foreign deposits), Cypriot subsidiaries of foreign banks, co-operatives, and branches of credit institutions. It will be calculated based on a bank’s total deposits (local and cross-border) as at December 31 each year. Deposits from foreign financial institution and domestic interbank deposits will not be included in this calculation.

An initial declaration will be required to be made on March 31, but which can be revised up to December 31. Payment is to be made in four installments, at the final day of each quarter, with a final payment on December 31 of each year. The levy is limited to a maximum of 20% of the bank's total taxable profits.

Tax paid under the levy will not be tax deductible for income tax purposes but will reduce the accounting profits of a bank for deemed distribution purposes.

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