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EU Savings Tax Directive
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European Union Savings Tax Directive

What is the EU Savings Tax Directive?

The EU Savings Tax Directive was introduced in July 2005, and for the first time it forced each EU member country to exchange information about EU residents living in one country who earn interest on bank accounts (and a few other types of investments) held in another EU country. It only applies to EU residents, so if you’re not resident in the EU, you will not be affected by this tax, provided your bank knows this.

Gibraltar, the Cayman Islands and the Antilles although not EU members have also introduced legislation which backs the aims of the Directive, and will provide information on accounts of EU residents to the relevant EU tax authority.

However Austria, Belgium and Luxemburg have for the time being opted out of this system, and introduced a “withholding tax”, deducting tax at source at a current rate of 15%. This rate will increase to 35% in 2011.

Some other countries and offshore centres, although not within the EU have also adopted rules which support this Directive, such as Switzerland, Jersey, Guernsey and the Isle of Man. If you hold an account in any of these jurisdictions you have two options:

Opt for tax to be deducted at source at a rate of 15%, which is called a “retention tax” in these states, but is just the same as the “withholding tax”. Most banks in these places have opted for this as the default option, i.e. if you don’t do anything they will take tax from the interest.

Opt for the exchange of information, in which case the interest will be paid in full, but details of the account and interest will ultimately end up in the hands of the tax authorities in the EU country in which you are resident. With most banks you will normally have to explicitly tell them this is your favoured option if you want the interest paid in full.

There are a number of other jurisdictions which have also adopted similar rules which generally go some way to support the aims of the Directive they are:

Andorra, Anguilla, Aruba, British Virgin Islands, Guernsey, , Liechtenstein, Monaco, Montserrat, Netherlands Antilles, San Marino, Turks & Caicos

Is it possible to avoid the EU Savings Tax Directive?

The short answer is that there are some perfectly legal ways to get around the retention tax, or the disclosure of information.

Avoiding the European Union Savings Tax Directive.

There are a number of minor international offshore centres which have elected not to support the Directive these include, Singapore, Hong Kong, Bermuda and Barbados. If you feel comfortable putting your money in these centres and the rate of interest is adequate, then you could consider this as an option.

For people who want to use the companies located in some one of the most secure and highly regulated offshore centres, such as Jersey, Guernsey or the Isle of Man then it is still possible to avoid the EUSTD.

It is possible to use an offshore insurance bond (also known as portfolio bonds) to avoid the implications of the directive. These types of investments are offered by a number of offshore insurance companies and investments held within this type of contract do not form part of the directive.

Once  you have an insurance bond there are two ways in which you can invest in deposit/bank accounts. You can either select a “cash fund” which will invest the money in a wide range of bank accounts/money market investments. Or you can use the insurance bond as a wrapper. Using the insurance bond as a wrapper means that you would have an insurance bond with one company, and sitting within the bond is an offshore bank account with another company. You can therefore shop around for the best interest rate for you.

The advantage of using a bond this way is that the money avoids the Directive, and the interest is untaxed, and totally confidential.

If you’re an expat, and want to ensure that you and your loved ones are protected in the event of your death or ill health, and want to discuss your options and get some free quotations without obligation then contact us to speak to an independent financial adviser for expatriates, on +353 874 641 868 or contact us online.  

 

 

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