July 1^st, 2005 saw the introduction of  European Savings Directive. The Directive has serious implications for Europeans retired and living around the Mediterranean. The ESD is aimed at curbing tax evasion within EU member states. Its main concern is cross border taxation within the EU. It should be noted that even though part of the UK, the Isle of Man and Channel Isles are not EU members, so are not effected. Though the directive will effect Dublin, Luxembourg and Malta. The final legal requirements are not yet finalised, but one good source of information can be found on the www.isleofman.com site.

European Union Savings Directive

Most investors have wisely opened an Offshore Bank Account to enable them to manage their International earnings without incurring unnecessary tax. For those that haven’t, it is a key step in managing your offshore finances and we will be pleased to assist you with this task. For the many that already have offshore accounts it is critical to ensure that your bank is clearly aware of your residential status.The EU Savings Tax Directive is a new agreement between member states which covers earned savings income which was introduced on July 1st. Many clients won’t fully appreciate what is happening until they start to see the first tax bill on savings that they thought were tax free. The directive not only applies to interest on savings but to dividends on certain types of investment funds. It is not only being applied by all EU member states, but also by some offshore centres outside the EU, notably the Isle of Man, the Channel Islands and Switzerland. These three will deduct a 15pc withholding tax from customers affected, unless they agree to exchange of information with their home tax authority. The rate of withholding tax is expected to reach 35pc by 2011. The withholding tax revenue is shared between the collecting authorities.

For those living and saving in Europe it is has a greater effect. For a large number of our readers living outside Europe, but saving inside Europe it simply needs a little housekeeping. The new EU Savings directive WILL affect your offshore bank account situation if the bank only has your correspondence address. If this is the case, it is strongly suggested that you write to your Bank advising them of your non-residence status. If possible also send them proof of residence, which may be a Utility Bill or, if this is in another language to the Banks, a letter from your employer. The correspondence can still be sent to your home country address. This action will enable you to avoid any unessassary tax on your hard earned  savings.For those that are presently living back in the EU. A simple, but legitimate, route round the Directive is to save money in an account which only pays out interest on closure, as this defers the tax liability. Standard Bank currently offers this. This type of account could benefit people who plan to move back out of an EU member state. They can close the account and collect their interest once they are tax resident elsewhere. It also benefits high earning UK resident taxpayers. This group can defer collecting their interest until they move into a lower tax bracket, such as on retirement or if they take a sabbatical.