EU Saving Tax Directive
The European Union Savings
Tax Directive came into effect on 1st July, 2005. It aimed at a uniform
information exchange regime to apply across the Union, with all countries
agreeing to report interest on savings paid to the citizens of other Member
States to those States tax authorities.
The Commission allowed Austria, Luxembourg and Belgium to apply a
withholding tax (at 15%) until 2009 due to strong traditions of banking
secrecy. Many of the UK's offshore financial centres have been forced to
join the directive, along with the Netherlands Antilles, Aruba and some
European centres (Andorra, Monaco, Liechtenstein and San Marino). Most of
these places will also take the withholding tax route, as will Switzerland.
The directive applies to many types of return on savings instruments, all
loosely described as interest, when received by individuals, but does not
affect interest paid to companies. Under the information exchange system,
the identity of recipients will be known to their home tax authorities; when
tax is withheld, the identity of the recipient will not be reported, thus
preserving confidentiality. The EU Savings Tax Directive does not apply to
offshore centres or other jurisdictions not connected to the EU.
Who Is Affected?
The Directive does not apply to persons including EU Nationals who are
resident outside the 25 Member States of the EU or the Crown Dependencies of
the UK (Jersey, Guernsey and the Isle of Man). Any new countries joining the
EU will be obliged to accept the information-sharing variant of the
directive, and their residents will be caught by the directive as and when
those countries accede to the EU.
If you are an individual (natural person) who is resident in an EU Member
State, and earn bank interest or other savings income on deposits or
investments held in your own name in another EU Member State, third country
or territory included, then it is likely that you will be affected by the
directive.
How to Escape the Savings Tax Directive
The most effective way to escape the effects of the directive is to be a
resident of a country which has not signed up to the directive, or if that
is impossible, to make sure that you don't have investments that will be
caught by the directive.
Entities Outside The Scope Of The Directive
Legal entities whose profits are taxed under the general arrangements for
business taxation and similar entities (e.g. companies, partnerships and
limited partnerships) are not relevant payees and payments to such persons
fall outside the scope of the Directive, which only applies to individuals.
Trusts and foundations are equally exempt in most territories. There is
speculation that this may be extended in the future.
