germany-eu_savings_tax

EU Savings Tax Directive
Your Guide to the European Savings Tax Directive

Introduction
This Guide to the European Savings Tax Directive is a supplement to the Offshore Investment Guides. It has been written to clearly and simply point out the facts about the EU Savings Tax Directive that you need to be aware of…to explain exactly how the Directive can affect you…and to suggest ways in which you can retain your privacy, protect your assets and secure your on-going
financial development in spite of the Directive.

The Facts
So, what is the EU Savings Tax Directive (ESD)?

The Directive, which came into effect in July 2005, is one third of the EU Tax Package, which is comprised of measures relating to the taxation of individuals and businesses that have been agreed by the European Union.

This Guide is designed to give you - as an individual - the facts you need. As the other two measures within the EU Tax Package – namely, the European Directive on Interest and Royalties, and the Code of Conduct - relate to business taxation, they will not be discussed in this Guide.

Simply put, the ESD is an agreement between the EU Member States to automatically exchange information about any customers who earn savings income in one EU State but who reside in another EU State. This is known as the ‘automatic exchange of information option’ and it is the ultimate objective of the Directive.

An individual’s identity, their address, the bank or investment house where their affected assets are held, the level of ‘savings income’ received and the period over which it has been received, are passed automatically by the tax authority in the country in which the money is ‘housed’, to the tax authority in the country in which the individual resides.

What does the EU mean by ‘savings income’?

Under the ESD, there are four main categories of ‘savings income’:
- Interest on bank accounts and fixed-rate deposits
- Interest rolled-up and paid on the termination of a bank account or bank deposits
- Distributions from certain investment funds that have over 30% of the fund invested in debt claims
- Income accumulated and paid out upon the sale or redemption of units in certain
investment funds where over 40% of the fund is invested in fixed rate deposits or
similar.

Confused?

Well, savings income - as defined by the ESD - is basically interest earned on your bank account deposits, interest and proceeds from the sale or redemption of certain types of bonds, and income from certain types of investment funds.

Now, bearing in mind that the EU is a rather large and cumbersome beast, there are of course all sorts of exceptions and a number of additions to the Directive. Nothing is ever as simple as it might first seem!

Despite certain exceptions and alternatives, it is important to know that every EU Member State has agreed to the ESD in one way shape or form!

UK Crown Dependencies, the Dependent Territories of the Netherlands, and a number of othercountries known as ‘Third Countries’ have also volunteered to abide by the principles of the ESD.

For the majority of our readers, it is most important to note that the Isle of Man, Jersey and Guernsey are included in the EU Savings Tax Directive, and if you have bank accounts or certain types of investments in any of these jurisdictions, you will most likely be affected by the Directive.

The full list of locations affected is as follows:
Andorra Anguilla Aruba Austria Belgium British Virgin Islands Cayman Islands Channel Islands Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Isle of Man Italy Latvia Lichtenstein Lithuania Luxembourg Malta Monaco Montserrat Netherlands Netherlands Antilles Poland Portugal San Marino Slovakia Slovenia Spain Sweden Switzerland Turks & Caicos UK

So, if you are a resident in an EU Member State, and you have savings or investments that generate you interest or ‘savings income’, and these savings or investments are in one of the other above listed countries, it is highly likely that you will be affected by the ESD and you must take action as soon as possible.

Part Two: The Solutions
The bad news is that you cannot afford to wait to get expert advice and take action to protect your assets’ performance, your personal privacy, and your long-term financial growth potential.

As every individual’s circumstances are unique, it is not possible for this Guide to cover every particular eventuality or every possible solution, nor is it possible to guarantee that there are solutions to protect everyone.

Therefore, to receive the best advice applicable to you personally, the importance of seeking independent financial advice in this instance cannot be stressed strongly enough.

Obviously, so many people are now asking: “Is there a way for me around the ESD?” or “Can I avoid the automatic disclosure of my personal information?” or “Can I protect my assets from this withholding tax?”

For example, a number of EU Member States have decided against the automatic exchange of information option. Some decided to apply a ‘withholding tax option’ for a given transitional period.

Any country which decides to apply this withholding tax option has to offer at least one of two other alternatives to individuals who will be affected!

These two alternatives are:
- If you don’t want tax to be withheld on your behalf, you have the right to expressly authorise the bank or investment house (the paying agent) to pass on your information to your EU Member State.
- If you believe you are exempt from withholding tax, you can prevent withholding tax being levied against your assets upon presentation of relevant documentation from your EU Member State showing that you are tax exempt.

And the answer to all of these questions is “Yes.”

That’s the good news!

More good news: There are a number of viable solutions available that will potentially offer the solution to your problem, a practical example of which may be a Portfolio Bond.

How could a Portfolio Bond work to protect your assets from the exchange of information or the withholding tax options of the ESD?

If an ESD affected expatriate were to hold their simple savings account through a Portfolio Bond, for example, the bond itself would not actually be subject to the above detailed disclosures of information or the withholding tax option. The savings account, if held directly, would be subject to these restrictions. As there are some favourable fixed-income returns currently available in the marketplace, an independent financial adviser might recommend this solution, when applicable.

A Portfolio Bond in this case would have the added advantages of circumventing the stresses usually associated with the utilisation of new fixed-interest deals to which an individual saver is often subject.

How?

Consider this: If an individual were to take out a one-year fixed-interest deal with Bank A and find that, upon maturity of the investment, Bank B offered the best fixed-interest rate at that time, to take advantage of Bank B’s offer, the individual would have to personally surrender current fixed deposits, apply to Bank B for the offer providing proof of address, identity, etc., transfer money, bear the cost of the transfer and paperwork, etc., etc.

Whereas, by investing through a Portfolio Bond, the holdings can be switched with one simple fax instruction to sell one fixed-deposit and invest in another. Much simpler!

Furthermore, with a Portfolio Bond, it is possible for all of a client’s assets, securities and funds to be held under one wrapper, providing a valuation in any one currency of the total assets on any chosen day.

A Portfolio Bond is just one example of the many investment vehicles available which offer solutions to individuals affected by the EU Savings Tax Directive.

Part Three: The Next Steps
If you don’t seek advice and take action soon, you may miss out on the best deals available designed to protect you and your assets from the ESD, and you may find that if you wait to act too long, you are no longer eligible for your preferred solution.

You need to know whether you are affected and how exactly any effect will reflect on you personally, on your assets and on your tax-effective financial growth potential today and in the future. Get comprehensive independent financial advice on all of your currently held assets and make sure you know where you stand!

Work with an independent financial specialist with an offshore focus to protect your personal privacy, to utilise your current assets, to grow your future financial goals and to secure your long-term financial health.

Conclusion
The EU Savings Tax Directive is a real and significant threat to personal privacy, tax-effective investing and asset protection.

If you are resident in an EU Member State and have savings or investments that generate you interest or ‘savings income’ and these savings or investments are held in another EU Member State, it is highly likely that you will be affected by the ESD.

Get Informed!
As an Expatriate, you are in a privileged position. Make the most of the options available to you while you can.

Find the appropriate company to advise you about exactly what is available today. Choose the right company to get the best solution in place for you sooner rather than later.

We can help you find an internationally focused independent Adviser who understands your circumstances and is best placed to advise you.

Contact us with your questions or requirements and we will find an international, independent andexperienced Adviser suited for your specific needs.

This guide is written by, deVere & Partners, www.offshoreinvestmentguide.com