The introduction of a tax on bank deposits in Cyprus as a measure to save the country's economy could result in large indirect losses for Ukraine, according to investment experts polled by Interfax-Ukraine.
According to a managing partner of Capital Times investment company, Erik Naiman, said that direct tax losses for Ukrainians could reach 100-200 million euros. In addition, the increase in corporate tax will cost several dozens of millions a year.
He said that in terms of indirect losses, the situation on Cyprus actually closed the window for the attraction of foreign investment by Ukrainian companies, banks and the country, including via the placement of eurobonds.
“The window has not been closed fully, but compared to the previous week, the interest rates of securities of Ukrainian borrowers grew by 0.25 percentage notches and could grow further. The losses totally could be larger for Ukraine, taking into account the high debt burden this year,” Naiman said.
The head of the analytical department of Investment Capital Ukraine (ICU), Oleksandr Valchishen, said that with the global reaction to the situation at Cyprus first one should expect a fall in the quotations of Ukrainian shares and eurobodns.
In the future not only the one-time tax, but the tougher requirements on disclosure of information on depositors and other measures will turn off the significance of Cyprus as an offshore zone as a part of the European Union.
“Ukrainian businessman will take this into account and look for alternatives in other zones,” he said.
Naiman said that Cyprus has not been an offshore zone in the classical sense for a long period of time: the country has lower taxes, but they are not zero taxes – with some exceptions.
Taking into account instability of the Cypriot banking system and the specifics of doing business in the country, one could anticipate that the interest to other European jurisdictions will grow. In terms of banks, the banks of Latvia will gain from this, the expert said.
SP Advisors Director General Nick Piazza said that another affordable alternative to Cypriot deposits could be accounts at Georgian banks where the deposit rate at present is almost the same as the deposit rate in Cypriot banks. The Georgian tax system is rather favorable for deposits now: the country does not have tax on the increase in the cost of capital, luxury tax and tax on incomes received abroad. In addition, tax on dividends and interest rates, which is around 5 percent now, this year will be cut to 3 percent, and it will be canceled from 2014.
Naiman said that if Cyprus manages to suppress a wave of discontent, European politicians are able to convince investors and ordinary bank depositors in the fact that this practice does not apply to other countries of the eurozone, the fact that Cyprus avoided default would positively impact the global economy.
