EU Overseas Savings Tax Changes

As of July 1st new measures have been introduced by the EU savings tax directive that include an increase in the withholding tax rate to 35%

London, UK (Pryce Warner International) July 13th, 2011 – The EU savings tax directive was introduced in 2005 as a means of clamping down on perceived tax avoidance.

This meant that if you held a bank account in one EU country but were resident in another, your bank would now be obliged to pass on the details of your earnings and/or savings to the tax authority in the country you are resident. In addition to all EU member states, the law applies to dependent jurisdictions such as Jersey and the Isle of Man.

However, many countries or tax jurisdictions opted to charge a withholding tax instead, which meant details did not have to be passed on and instead the individual would pay a flat rate of tax on their earnings from their overseas account.

Countries that opted to use the withholding tax included Belgium, Luxemburg, Austria, the Isle of Man, Guernsey, Jersey, Switzerland, Monaco, Andorra, Lichtenstein, the British Virgin Islands, San Marino and the Turks & Caicos Islands.

As of July 1st, the Isle of Man and Guernsey will now longer use the withholding tax and will instead pass on the details of the holders account to the tax authority of the country in which they are resident.

In addition to this, the flat rate of the withholding tax has now increased from 20% to 35%.

This means that in all of the aforementioned countries, barring the Isle of Man and Guernsey, tax paid on interest earned from savings accounts will increase by 15%.

The rate of 35% is in fact higher than the internal rate that many countries offer, in order to encourage offshore jurisdictions as well as individuals to opt to comply with the directive rather than offer a form of withholding tax.

Many Expats are likely to feel the result of this change as it is common for people living and working overseas to hold accounts in more than one country.

Anyone that holds an account in one of the above jurisdictions but lives in another should carefully consider whether they are better of paying a withholding tax or passing on the information regarding their overseas holdings.

David Harra, a Senior Market & Investment Analyst with Pryce Warner International, a Financial Services Provider for Expats, commented: “While the EU are understandably keen to prevent tax evasion, the increase to 35% seems excessive when you consider the equivalent tax rate in most EU countries. Though it is important to ensure that tax avoidance is minimised and banking information is transparent, individuals who legitimacy have offshore holdings should not be punished in the process. Despite these changes there remain many legitimate opportunities in tax jurisdictions across the EU to reduce taxation on savings and investments as well as on your estate for inheritance tax purposes. Anyone considering doing so or affected by the increased savings tax rate should always consult independent financial advisors before taking action.”

Pryce Warner International Group provide International Asset & Investment Management, Independent Financial Advice & QROPS Overseas Pensions.

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By: Aneil Fatania
Financial Editor
Pryce Warner International Group
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