European Union Savings Tax Directive (EUSTD)

What is it?

The EUSTD is an agreement between the EU Member States to exchange information with each other about those who receive savings income in one EU member state but live in another. It came into effect in July 2005.

It applies to most interest payments but not dividends or discretionary Trust distributions. The changes will affect those clients resident in the UK with Guernsey based interest bearing accounts who are currently subject to the Retention Tax.

The countries that have adopted the EUSTD are:-

UK, Ireland, France, Germany, Netherlands, Spain, Portugal, Italy, Greece, Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Malta, Cyprus, Bulgaria, Romania and Belgium

In addition some non-EU countries are abiding by the directive being Antilles, Gibraltar and the dependent territories of the Caribbean including the Cayman Islands.

Some countries however had previously opted to apply a Retention Tax rather than an automatic exchange of information and these are:-

Andorra, Monaco, Liechtenstein, San Marino, Switzerland, Luxembourg, Austria, Guernsey, Isle of Man and Jersey.

Important changes taking place on 1^st July 2011

Legislation has been passed in Guernsey to move to exchange of information with effect from 1^st July 2011. This will affect individuals who have interest bearing accounts in Guernsey, and indeed elsewhere, and who live in the EU.

Although there are some exceptions, in most cases interest bearing accounts have been subject to a 20% Retention Tax (also known as Withholding Tax) but this will change with effect from 1^st July 2011 so that all interest is paid without this tax deduction. In future, full information regarding the interest paid on the account will be given to the tax authority in the European Union country in which you live. In Guernsey this was previously an option in order to avoid the retention tax.

Your Bank or deposit taker will be obliged to exchange information on the interest paid to EU residents with a Guernsey account. The information they have to provide will be details of your identity, place of residence and the amount of interest paid. Initially this information will be given to the Guernsey Income Tax Office who will forward it to the tax authority in the EU country in which you live.

In some circumstances, Guernsey Trustees will need to consider the EUSTD where they have beneficiaries resident in an EU member state.

If you have any questions in relation to this article or would like advice then please contact Steve Dumper at SRD Tax Management Limited who will be happy to review your position and advise in detail.

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