Fact Sheet
1. Does this refer to me?
This note applies to individuals
and holders of joint accounts who are residents of European Union
(EU) Member States. Individuals resident outside EU are generally
not affected, although if you hold a passport issued by an EU
Member State, you should also read on.
2. What is the European Union
Savings Tax Directive?
The EUSD 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 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
customer and interest payments on that account. The German Tax
Authorities will then in turn provide that information to the
French Tax Authorities. This in 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
EUSD.
Withholding tax:
Although the EUSD 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 (initially at a rate of 15%) 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 the 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.
3. How does the EUSD affect Jersey,
Guernsey and the Isle of Man?
Although these islands are not part
of the EU, they have agreed (along with Switzerland and a number of
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 is known in
Jersey, Guernsey and the Isle of Man as a '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.
4. When does the EUSD take
effect?
The EUSD came into force on 1st
July 2005.
5. So will it affect me?
If you are an individual resident
in an EU Member State (e.g. the UK or Spain) and you earn bank
interest on an account held with a bank located in the Isle of Man,
Jersey or Guernsey, then you will be affected by the EUSD. 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.
If you are resident in the UK but
were born elsewhere you may be non-domiciled for tax purposes on
income not remitted into the UK.
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