The EU Savings Tax Directive

• The Directive DOES affect those with offshore and onshore bank accounts, deposits and interest bearing instruments.
• The Directive DOES NOT affect general insurance, equity investments or portfolio bonds.

The EU Savings Tax Directive (ESD 2005) came into force on 1 July 2005 and is having a massive impact on savers, not only across Europe and its depending territories but also for those with savings in certain non EU Territories such as the Isle of Man, Guernsey, Jersey, Switzerland, Andorra and Monaco.

In a nutshell, the Directive, which took 15 years to agree, likely spells the end for tax-free returns on offshore bank accounts and other savings income for many EU residents. Financial institutions in EU member states are also required to exchange information about customers who receive savings income in one EU country but reside in another, cutting right to the core of investor privacy. If clients are fortunate enough to have their savings in one of the few countries that have opted for a 'retention tax' then their confidentiality is safe for the time being. But, with taxes deducted at source, starting at 15% and rising to a staggering 35%, it will undoubtedly signify a sharp decrease in clients' savings income.

Who is affected?

If clients hold savings or investments such as bank accounts, deposit accounts, bonds, savings certificates or term deposits that generate interest then it is likely that they are affected by the EU Savings Tax Directive. Clients can find out more about their personal situation and the solutions available to them by contacting one of our professional advisers.

How does it work?

The ESD forces member countries of the European Union to exchange currently confidential information on customers who earn interest in one EU country but reside in another. This has become commonly known as 'the reporting requirement'.

Alongside the 'reporting requirement' also exists the option in some countries to deduct a withholding tax at source; this is referred to as the ‘retention tax’. This option has been adopted by The Channel Islands and some non EU countries such as Switzerland and Andorra in order to protect the privacy of their investors. The retention tax means that from 1 July 2005 tax is automatically being deducted from savings at a rate of 15%, gradually increasing to 35% in 2011.

What are the options?

Thankfully there are solutions for those who act now!

There are various structures that exist, such as portfolio bonds and other investment wrappers, which will keep client income secure and continue to protect their privacy.

Each individual case is different however, and clients are strongly advised to seek the help of a specialist in this field.

At deVere and Partners, the market leader in offshore investments, we have established an EU Savings Tax Support Team that provides clients with free, impartial advice, relevant to your particular circumstances.