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P.I.C. - EU Savings Tax Directive

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Fact Sheet

1. Does this apply to me?

Individuals residing outside the EU are generally not impacted, though if you hold a passport issued by an EU Member State, you should read on. These facts refer to individuals and holders of joint accounts who have residency in one of the European Union (EU) Member States.

2. What is the European Union Savings Tax Directive (EUSD)? > The EUSD is an agreement between the EU Member States, whereby member states automatically exchange information with each other about clients who earn savings income in one EU Member state but reside in another. This agreement was approved by the EU Council of Ministers on 3rd June 2003 and came into effect from 1st July 2005.

The Directive can be applied in two ways:

Exchange on 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 client and interest 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 client and interest payments on that account. In turn, the German Tax Authorities will  provide that information to the French Tax Authorities. This is known as an "automatic exchange of information". It enables the French Tax Authorities to compare the information provided under the EUSD with the amount of income declared by that individual on his or her own French personal tax return.

Withholding tax: interest paid to individuals residing in other EU Member States (Although the EUSD focuses 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 (at an initial rate of 15%) from interest paid to individuals residing 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 A 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 client. Under the withholding tax option the jurisdiction must also offer clients the automatic exchange of information and/ or a system whereby the client obtains a certificate from their local tax authority which details the source from which the interest payment arises.

3. How does the EUSD affect Guernsey, Jersey, and the Isle of Man? e islands from the member States in order to highlight the fact that they are not part of the European Union and are not subject to the EUSD.

4. When did the EUSD take effect?

The EUSD came into force on 1st July 2005.

5. So does this affect me?

If you reside in one of the EU Member State (e.g. the UK or Spain) and you earn bank interest on an account held within a bank = in Guernsey, the Isle of Man or Jersey, then you will be affected by the EUSD. If you are reside outside of the EU then you should fall outside the scope of the EUSD even if you hold a passport issued by an EU Member State. Nevertheless, you may be asked to provide proof that you are a non-EU resident.

If you are a UK resident but were born abroad, you may be non-domiciled for tax purposes on income not remitted into the UK.

6. How will it affect me?

If you reside in one of the EU Member States (e.g. the UK or Spain) and you earn bank interest on an account held within a bank In Guernsey, the Isle of Man or Jersey, then you will be affected by the EUSD. If you reside outside of the EU then you should fall outside the scope of the EUSD even if you hold a passport issued by an EU Member State. Nevertheless, you may be asked to provide proof that you are a non-EU resident.

If you are a UK resident but were born abroad, you may be non-domiciled for tax purposes on income not remitted into the UK.

7. How do these changes affect customer confidentiality rules?

These changes will have no impact upon customer confidentiality unless you opt for the exchange of information option. If you elect for exchange of information, relevant details about yourself, the account and the interest payment will be provided to Guernsey, the Isle of Man or Jersey or Tax Authorities who, in turn, will provide that information to the Tax Authorities of the EU Member State in which you reside.

8. Does the EUSD just relate to bank accounts?

No, the EUSD also extends to a number of alternative forms of "savings income". These other areas are: interest from, and the proceeds of sale or redemption of, certain bonds, and income from certain types of investment funds.

The Directive will affect:

  • Interest paid or credited to accounts
  • Interest rolled up when the balance is repaid
  • Interest paid out on debt-claims (this would include all UK Government securities and certain other types of bonds)
  • Interest accrued and paid out on (c) above when such debt-claims are sold (e.g. when a UK Government security is sold the accrued interest portion of the sale proceeds will be savings income for the purposes pf the Directive)
  • Distributions made by certain unit trusts and other open ended collective investment funds which have invested more than 15% of their investments in debt claims
  • Accumulated income paid out when units in certain collective investment funds that have invested more than 40% of their investment in debt claims are redeemed, repaid or sold (this percentage will reduce to 25% from 2011).

9. Examples of investments NOT creating savings income

  • Insurance policies and payments from them
  • Personal pensions
  • Purchased life annuities
  • Winnings from betting including the national, European and other lotteries, but note that Premium Bond prizes DO arise from debt claims
  • Ordinary and preference shares and dividends from them
  • Rents from real estate property
  • Shares in OEICs and units in Unit Trusts (subject to the limits on the funds investment into debt claims)

If you would like free confidential advice on how to plan your finances without obligations you e-mail us on [email protected] or call us on +41 44389 8282.

       
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