Guide to Essential Money Tools

Savings Tools

Expat savers and the EU Savings Tax Directive

The European Union Savings Tax Directive (EUSTD) has been in effect for two years. We explain what it’s all about and help you ascertain whether it impacts on your tax obligations.

The European Union Savings Tax Directive (EUSTD affects all individuals who are resident within the European Union’s borders. Expats who are not affected are those individuals resident outside the European Union, regardless of nationality, and those whose accounts are held in a company name or under the name of a Trust. In addition to these exemptions, some life assurance type deposits and investment products are also outside the scope of the Directive, regardless of the country of residence of the underlying investor.

The main aim of this Directive is to assist the gathering of tax revenues from all non-resident personal deposit accounts which are held in EU member state countries by EU residents throughout the EU. And so, practically speaking, the Directive works like this: any EU tax resident with money earning interest in any of the EU member states is subject to the rules which require deposit-takers to exchange information with the account holders’ relevant tax authorities about their deposits and the interest those deposits have earned. In addition to the EU, various other countries have agreed to implement EUSTD. These include Andorra, Liechtenstein, Monaco, San Marino, Switzerland and the United States of America, as well as all dependent and associated territories of EU member states, such as Jersey, Guernsey and the Isle of Man.

Withholding tax
Austria, Belgium, Luxembourg, the Isle of Man, Jersey and Guernsey have all opted for the automatic option which is to levy a transitional withholding tax on savings instead of exchanging information. This tax was introduced at the rate of 15 per cent. Three years after the implementation of the Directive in July 2008, the rate will increase to 20 per cent before reaching its ceiling of 35 per cent after a further three years. Seventy-five per cent of the tax generated will go to the individual’s home country, while the rest will go to the country where the funds are held.

All the offshore deposit-takers based in Jersey, Guernsey and the Isle of Man provide extensive information on EUSTD and how their customers can comply with the rules. Expats unsure of their position or uncertain whether they should opt for exchange of information or the withholding tax rule should seek advice from their deposit-taker.