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EU Savings Tax Directive
2005 - The Facts
This Directive, is one third of the EU Tax Package
which comprises of measures relating to the taxation
of individuals and businesses that have been agreed
by the European Union. The Directive came into effect
on the 1st of July 2005
This guide is designed to give you - as an individual
- the facts that you need to know. Guides for the
other two measures within the EU Tax Package, namely
the European Directive on Interest and Royalties
and the Code of Conduct related to business taxation,
are available on request.
In simple terms The European Savings Tax Directive
(ESD) is an agreement between the EU Member countries
to automatically exchange information about any
customers or clients who earn savings income in
one EU country but who reside in another EU country.
This is known as the “automatic exchange of
information option” and it is the ultimate
objective of the directive.
This means, an individual’s identity, their
address, the bank or investment house where their
affected assets are held, the level of “savings
income” received and the period over which
it has been received, will all be passed automatically
by the tax authority in the country in which the
money is “housed” to the tax authority
in the country in which the individual resides.
Under the ESD there are actually 4 main category
of “savings income”: -
1. Interest on Bank Accounts and Fixed Rate Deposits.
2. The interest rolled up and paid on the termination
of a bank account or bank deposits.
3. The distributions from certain investment funds
which have over 30% of the fund invested in debt
claims.
4. The income accumulated and paid out upon the
sale or redemption of units in certain investment
funds where over 40% of the fund is invested in
fixed rate deposits or similar.
Savings income as defined by the ESD is basically,
interest earned on your bank account deposits, interest
from and proceeds from the sale or redemption of
certain types of bond, and income from certain types
of investment funds.
Now bearing in mind that the EU has a rather large
and cumbersome administration, there are of course
all sorts of exceptions and a number of additions
to the Directive and nothing is ever as simple as
it might first seem.
Firstly, some EU Member countries have decided against
the automatic exchange of information option. The
Isle of Man, Jersey and Guernsey have decided to
apply a ‘withholding tax option’ for a
given transitional period instead, as have Austria,
Belgium and Luxembourg for example.
In these countries tax will be deducted at source
from income derived from savings belonging to EU
residents who are resident in another EU country.
The rate of withholding tax will be 15% initially
in July 2005 rising gradually to 35% from July 2011.
Any country that decides to apply this withholding
tax option, has to offer at least one of two other
alternatives
to individuals who will be affected.
These two alternatives are: -
1. If you don’t want tax to be withheld on
your behalf, you must have the right to expressly
authorise the bank or investment house (the paying
agent) to pass on your information to your EU Member
country.
2. If you believe you are exempt from withholding
tax, you can prevent withholding tax being levied
against your assets upon presentation of relevant
documentation from your EU Member country showing
that you are in this case tax exempt.
Despite certain exceptions and alternatives, it
is important to know that every EU Member country
has agreed to the ESD in one way shape or form.
UK Crown Dependencies, the Dependent Territories
of the Netherlands, and a number of other countries
known as “Third Countries” have also volunteered
to abide by the principles of the ESD.
For the majority of our clients it is most important
to note that the Isle of Man, Jersey and Guernsey
are included in the EU Savings Tax Directive, and
if you have bank accounts or certain types of investment
in any of these jurisdictions you will most likely
be affected by the Directive.
The full list of countries affected is as follows:
-
Andorra, Anguilla, Aruba, Austria, Belgium, British
Virgin Islands, Cayman Islands, Channel Islands,
Cyprus, Czech Republic, Denmark, Estonia, Finland,
France, Germany, Greece, Hungary, Ireland, Isle
of Man, Italy, Latvia, Lichtenstein, Lithuania,
Luxembourg, Malta, Monaco, Montserrat, Netherlands,
Antilles, Poland, Portugal, San Marino, Slovakia,
Slovenia, Spain, Sweden, Switzerland, Turks &
Caicos, UK.
If you are therefore, a resident in an EU Member
country, and you have savings or investments that
generate interest or “savings income”,
and these savings or investments are in one of the
other above listed countries, It is highly likely
that you will be affected by the ESD and you must
take action today, before it’s too late.
Solutions to the EU Savings Tax Directive 2005
Obviously so many people are now asking “is
there a way for me around the ESD?” “Can
I avoid the automatic disclosure of my personal
information?” or “Can I protect my assets
from this withholding tax?” The answer to all
of these questions in its most simple form is “yes”.
However, you must not leave it too late to take
advice and action to protect your assets performance,
your personal privacy, and your long term financial
growth potential.
As every individual’s circumstances are unique,
it is not possible for this guide to cover every
single eventuality or every single possible solution,
nor is it possible to guarantee that there is a
solution to protect everyone. To receive the best
advice applicable to you personally, the importance
of seeking independent financial advice in this
instance cannot be stressed strongly enough. Churchill
& Partners can provide you with a qualified
and experienced fully Independent Financial Advisor,
who will review your circumstances, give you “best
advice” and provide you with the best solutions
in the marketplace.
There are a number of very interesting and possibly
viable solutions available that will potentially
offer the solution to your problem, a practical
example of which may be a portfolio bond. If an
ESD affected expatriate were to hold their simple
savings account through a portfolio bond for example,
the bond itself would not actually be subject to
the above detailed disclosures of information nor
the withholding tax option, whereas the savings
account, if held directly would be subject to these
restrictions. As there are some favourable fixed
income returns currently available in the market
place an independent financial adviser might recommend
this solution where applicable.
A portfolio bond in this case would have the added
advantages of circumventing the stresses usually
associated with the utilisation of new fixed interest
deals that an individual saver is often subject
to. If an individual were to take out a one year
fixed interest deal with Bank A and find that upon
maturity of the investment, Bank B offered the best
fixed interest rate at that time, to take advantage
of Bank B’s offer the individual would have
to personally surrender current fixed deposits,
apply to Bank B for the offer providing proof of
address, identity etc., transfer money, wear the
cost of the transfer and paperwork etc., etc. Whereas,
by investing through a portfolio bond, the holdings
can be switched with one simple fax instruction
to sell one fixed deposit and invest in another.
Furthermore, with a portfolio bond it is possible
for all of a client’s assets, securities and
funds to be held under one wrapper, providing a
valuation in any one currency of the total assets
on any chosen day.
A portfolio bond is just one example of the products
available which offer solutions to individuals affected
by the EU Savings Tax Directive 2005. It is not
the only solution, it may not be applicable to everyone,
and it may not be the best product for you.
In conclusion, the EU Savings Tax Directive 2005
is a real threat to personal privacy, tax effective
investing and asset protection. If you are resident
in an EU Member country and have savings or investments
that generate interest or “savings income”
and these savings or investments are held in another
EU Member country it is highly likely that you will
be affected by the ESD.
There is action that you should be taking to understand
your position. There is also action that you should
take to protect yourself, your assets and your financial
future.
If you would like a no obligation, fully independent
financial review, followed by our recommendation
of a solution based on your own personal circumstances,
we can provide a fully qualified and experienced
financial advisor to visit you at your place of
work, or your home if you prefer. There is no charge
for our service and the benefits could be unlimited.
Just complete the form on our contact
us page. |
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