Update 20 March 2013 - Further to our briefing below kindly
note that the draft bill for haircut on deposits was rejected by
the House of Representatives and that the Government of Cyprus has
announced that banks will not reopen before Tuesday, 26 March.
Harneys is monitoring the developments. We have published a further
comment on legal impacts of the present situation and will host a
live webinar on developments on Monday 25 March at 11 a.m. GMT.
Click
here for more information.
On 15 March 2013 the representatives of the Republic of Cyprus met
with other members of the Eurogroup, the informal body comprising
the finance ministers of the 17 member states of the eurozone, to
reach an initial agreement for the sovereign bail out of
Cyprus. The preliminary compromise, pending approval by
Parliament in Cyprus, includes the following terms:
- Up to €10 billion in lending support from the European Central Bank and the International Monetary Fund.
- The introduction of a one-off levy (a "Stability Levy") on all deposits maintained in accounts with Cyprus-based banks, co-operatives and branches of foreign banks licensed to carry out banking activities in Cyprus. The rate of the Stability Levy initially agreed would impose a charge of 6.75% on deposits of up to €100,000 and 9.9% on deposits in excess of €100,000. It appears that deposits of up to Euro 20,000 will remain unaffected. The draft bill would impact deposits in all types of accounts, including current accounts, savings accounts and fixed income accounts, however it is important to note that changes are being suggested to exempt client accounts from the measure. It is presently unclear whether non-cash custody accounts will be impacted by the measure.
- In return for the charge under the Stability Levy it is planned that account holders will receive either shares in Cypriot financial institutions, government-issued bonds or other similar instruments although, again, it is unclear how this will be implemented. In certain instances such instruments will be guaranteed by future earnings from the nascent Cypriot energy sector.
- The rate of corporate tax to be increased by 2.5 percent, from 10 percent to 12.5 percent.
- The rate of the Special Defence Contribution1 on interest to be increased by up to 10 percent, from 15 percent to a sliding scale up to 25 percent.
The proposed measures do not affect regimes governing dividends,
capital gains on securities, immovable property or interest earned
by non-residents.
The proposed Stability Levy has caused major reaction and
controversy both within Cyprus and internationally.
Information emanating from news sources following the Eurogroup
meeting suggests that amendments will be made to the proposed
measure to offset some of its harsher effects. The Cyprus House of
Representatives was initially due to vote on the initial compromise
in an extraordinary session of House scheduled for 17 March,
however the vote has been postponed pending further governmental
and intergovernmental discussion. Timing for the vote remains
unclear. In the meantime the government has ordered all
banking institutions in Cyprus to remain closed until 21
March. ).
Footnotes
1. The Special Defence Contribution is a levy imposed on specified forms of income from sources in Cyprus and which may be payable by individuals and companies resident in Cyprus for tax purposes.
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.