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^{Disclaimer:  The information is provided as a guide and for interest only,  and nothing contained herein should be construed as specific advice.  Jayga Ltd makes no warranties or representations regarding the fitness for purpose of the content provided for your particular circumstances.  We recommend that all clients seek the best local advice on legal, financial or tax issues.  We are a service company only and do not advise on these matters.}

EU Savings Tax Directive                                                       

The European Saving Tax Directive  (STD) came into effect on 1 July 2005 and applies to natural persons only, resident in an EU country, on interest received on savings instruments, deposit accounts, etc.   At this time it does not affect interest paid to companies.  There is speculation that this may be extended in the future.

The Directive does not apply to persons (including EU Nationals) who are resident outside the Member States of the EU.

The aim of the STD is a uniform 'information exchange' regime to apply across all EU member states.   The new rules only apply to EU member states, but because the BVI, Anguilla, Turks & Caicos Islands, Cayman, Isle of Man and Channel Islands are UK dependent territories, they have also adopted and will implement the European Savings Tax Directive (STD).

There will be two systems:  'information exchange' and 'withholding tax'.   A table showing which system has been adopted by each country may be found on   http://www.lowtax.net/specials/std.html#table

1.  Information Exchange:   All countries agree to report interest on savings paid to the citizens of other Member States to those States' tax authorities.  This would remove the possibility for citizens of the EU hiding the returns on their savings from their home tax authorities.  Under the 'information exchange' system, the identity of individual recipients will be disclosed to their home tax authorities.   

This proposal is at odds with the tradition of banking secrecy well-established in a number of Member States - e.g. Austria, Luxembourg, Belgium and Switzerland.  These and several other countries will adopt the 'Withholding Tax' system.

2.  Withholding Tax:  The Commission has had to allow Austria, Luxembourg, Belgium and Switzerland to apply a 'withholding tax' (at an “initial” rate of 15%). The Channel Islands and Isle of Man have had to join the STD, 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.  When tax is 'withheld', the identity of the recipient will not be reported, thus preserving individual confidentiality.

Under the withholding tax option, banks and other paying agents will automatically deduct tax from interest and other savings income earned and pass it to their local tax authority, indicating how much of the total amount relates to customers in each Member State. The local tax authority will then keep 25% of the total amount collected and remit 75% to the various tax authorities within the Member States. The receiving country gets a bulk payment which is not broken down in terms of the individuals who are covered (thereby ensuring anonymity of the persons affected). The rate of withholding tax will be 15% from July 2005, 20% from 1^st July 2008, and 35% from July 2011.

Caymans and Anguilla opted for the exchange of information regime, and BVI opted for the withholding tax option.

The Table on http://www.lowtax.net/specials/std.html#table shows which countries / territories have opted for the 'exchange of information' regime, and which places have opted instead for the 'withholding tax' option (the latter preserves confidentiality of the affected persons).

The EU Savings Tax Directive does not apply to offshore centres or other jurisdictions not connected to the EU. 

If you are interested in making banking arrangements outside the territories affected by the STD, please contact us.

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 in the Table below: then it is likely that you will be affected by the STD.

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