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Cyprus: New Legislation on Bank Deposits to Raise 120 Million Euros
On 14 April 2011, just nearly two weeks after Standard and Poor's, a rating agency, downgraded the debt grade of Cyprus from A to A-, the Cyprus Parliament unanimously passed a new legislation relating to banking institutions. The Tax and Rescue Fund Law approves the imposing of taxes on deposits of banking institutions and aims at creating a financial stability fund that will help support the credibility of the local financial system and safeguard the deposits of investors.
The full amount of deposits of local banking institutions will be subject to a 0.095 percent tax. In particular, the levy will be imposed on commercial and cooperative bank deposits and it is expected to raise approximately 120 million euros by 2013. The tax will be imposed both on local as well as cross-border deposits.
Although, the original intention of the legislators was for the tax to expire after two years, in 2013, this was not retained. The rate of the tax will be determined by the Central Bank of Cyprus.
The legislators were eager to protect the customers of banks and to prevent any unfair practices and so an amendment of the new legislation prevents banks from transferring the levy by charging their customers. Were a bank found to be engaged in such practice, a fine of 100,000 euros will be imposed on the bank.
This new legislation is set to be one of the measures of the Cypriot Government against the recent downgrading and possible new downgrading of its sovereign ratings by a number of rating agencies, basically due to the exposure of Cyprus' fiscal system to Greek debt.
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