EU Savings Tax Directive
- Background of EU Savings Tax Directive
- Exchange of information within EU
- Withholding tax
- EU Savings Tax Directive Does Not Apply to Companies
- How does the EUSD affect Jersey, Guernsey and the Isle of Man?
- What details are passed on if client opts for exchange of Information?
- The EU Savings Tax Directive Applies Only to EU residents
Background of EU Savings Tax Directive
The European Savings Tax Directive (EUSTD) is an agreement between the EU Member States to automatically exchange information with each other about customers who earn savings income in one EU Member State but reside in another. It was approved by the EU Council of Ministers on 3 June 2003 and came into effect on 1 July 2005.
Exchange of information within EU
Exchange of information - This means that, for example, where a resident of France holds a bank account in Germany, the German bank will provide to the German Tax Authorities details of the customer and interest payments on that account. The German Tax Authorities will then in turn provide that information to the French Tax Authorities. This is known as "automatic exchange of information" and enables the French Tax Authorities to compare the amount of income declared by that individual on his or her own French personal tax return with the information provided under the EUSTD.
Withholding tax
Withholding tax - Although the EUSTD is centred on "automatic exchange of information", three EU Member States (Austria, Belgium and Luxembourg) have opted to apply a withholding tax instead. Under the withholding tax option, banks automatically withhold tax (the rate of which is 15% from 1st July 2005, increasing to 20% from 1 July 2008 and 35% from 1 July 2011) from interest paid to individuals resident in other EU Member States (but no information regarding individuals is provided to the Tax Authorities in either the State in which the individual is resident or the State in which the bank account is located). It is the Bank's responsibility to pay the withholding tax on behalf of the customer. Under the withholding tax option the jurisdiction must also offer to customers automatic exchange of information and/or a system whereby the customer obtains from their local tax authority a certificate which details the source from which the interest payment arises.
EU Savings Tax Directive Does Not Apply to Companies
The EU Savings Tax Directive Does Not Apply to Companies, offshore companies, offshore corporations and other legal entities. If there is confidentiality in the bank's contract and confidentiality law in the country's banking regulations, the companies' bank accounts will remain and be confidential.
How does the EUSD affect Jersey, Guernsey and the Isle of Man?
Although Jersey, Guernsey and the Isle of Man are not part of the EU, they have agreed (along with Switzerland and a number of other jurisdictions) to apply similar provisions. They have each decided to follow the same withholding tax option as adopted by Belgium, Luxembourg and Austria. Switzerland has also followed the withholding tax option.
The withholding tax will be known in Jersey, Guernsey and the Isle of Man as ‘retention tax’. This is to distinguish the Islands from the member States to reflect the fact that they are not part of the European Union and are not subject to the EUSD.
The Directive affects individuals resident in an EU Member State (eg the UK or Spain), who earn bank interest on an account held with a bank located in the Isle of Man, Jersey or Guernsey. If you are resident outside the EU then you should fall outside the scope of the EUSD even if you hold a passport issued by an EU Member State. However, you may be asked to provide proof that you are resident outside the EU.
What details are passed on if client opts for exchange of Information?
If you elect for exchange of information then relevant details regarding your identity, residence, the account and the interest payment will be provided to the country's Tax Authorities who in turn will provide that information to the tax authorities of the EU Member State in which you are resident.
The EU Savings Tax Directive Applies Only to EU residents
The EU Savings Tax Directive does not apply for non-EU residents.
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