Cypriots shocked as euro bail out includes 10pc tax on bank accounts

Residents of Cyprus reacted with shock yesterday after the government agreed to a €10 billion (HK$101 billion) bailout that includes an unprecedented levy on all bank deposits.

The debt rescue package, agreed with the euro zone and International Monetary Fund earlier in the day in Brussels, is significantly less than the €17 billion Cyprus had initially sought.

But it includes €5.8 billion to be raised through the bank deposit levy of up to 9.9 per cent, which will apply to everyone from pensioners to Russian oligarchs and tens of thousands of British expats.

At the same time, a "withholding tax" would be imposed on interest on bank deposits, and Cyprus will have to hike corporate tax to 12.5 per cent from 10 per cent and sell off state assets to help balance the public finances.

The levy will see deposits of more than €100,000 hit with a 9.9 per cent charge when lenders reopen their doors after a scheduled public holiday tomorrow. Under that threshold and the levy drops to 6.75 per cent.

Though it was reached too late for Cyprus newspapers, and other forms of traditional media were caught unawares, the bailout deal prompted some to queue up outside banks to withdraw cash from ATMs.