EU Savings and Tax Directive
The Directive, which came into force on 01 July 2005, is an agreement between the Member States of the European Union (EU) which requires Member States to exchange information with each other about EU residents who earn interest on savings and investments in one EU Member State but live in another. While the automatic exchange of information is the ultimate aim of the Directive, Austria, Belgium and Luxembourg have opted to apply a 'Withholding Tax' system for a transitional period.
Although the legal scope of the Directive does not extend outside the EU, certain jurisdictions – such as Switzerland, the Channel Islands and the Isle of Man – have agreed to put in place legislation that supports the aims of the Directive. Jersey has agreed to implement a 'Retention Tax' regime, together with the option to exchange information at the express consent of the beneficial owner.
How does the EU Savings Tax Directive affect Jersey
Jersey has voluntarily opted to implement local legislation that supports the Directive. The Island has agreed to implement a 'Withholding Tax' option. This is referred to as the 'Retention Tax' option to distinguish the Island from the EU Member States and to reflect the fact that the Island is not part of the EU and therefore not directly subject to the Directive.
So will this affect me
If you are an individual resident in an EU Member State and you earn interest on an account held with a bank, located in Jersey, then you will be affected by the legislation.
If you are living permanently outside the EU but hold a passport issued by an EU Member State, then you should fall outside the scope of the legislation. However, we are required to obtain proof that you are resident outside of the EU.
If I am within the scope of the legislation, how will it affect me
If the legislation affects you, there are three options available to you. These are:
- Retention Tax
- Exchange of Information
- Proof of Exemption
1. Retention Tax
'Retention Tax' is the default option for Jersey. If we determine that you are within the scope of the legislation, we are required to apply the 'Retention Tax' to your accounts unless you advise us otherwise. This means that any interest payments made to you by us after 01 July 2008 will be paid net of 20% 'Retention Tax'. This rate will increase to 35% from 01 July 2011.
Use our Retention Tax Calculator to calculate your net interest rate.
We will pay 'Retention Tax' to the tax authority in Jersey, who will in turn send it to the EU Member State in which you are resident.
Under this option, none of your details will be passed to the tax authorities.
2. Exchange of Information
You also have the option to exchange information. If you choose this option, the 'Retention Tax' will not be deducted from interest payments made to you. Instead, details of your identity and residence, along with details of the level of interest received and the period to which it relates, will be provided by us to the Jersey tax authorities, who will in turn provide this information to the EU Member State in which you are resident.
If you elect to exchange information, you must download and complete the Client Election Form and send it back to us.*
3. Proof of Exemption
If you fall within the scope of the legislation but believe you are exempt, you may be required to provide us with additional information. If you are unsure about this, you should seek appropriate professional advice.
Will this mean I have to pay more tax
No. On the basis that you are already declaring your interest as income received to your tax authority, these changes should have no impact upon the overall level of tax you pay.
If interest payments to you are made net of the 20% 'Retention Tax', this tax will be available for credit (i.e. offset) against your tax liability in the EU Member State in which you are resident.
On request, we will provide a certificate showing the amount of tax retained and sent to the Jersey tax authorities. This certificate may be required by your local tax authority.
How will the legislation affect client confidentiality rules
There will be no impact upon client confidentiality unless you elect in writing to exchange information. If you do not elect to exchange information, no information regarding you or your accounts with us will be provided to the tax authorities.
Please contact us if you have any queries. Alternatively, if you would like further information, please visit www.jerseyfinance.je. However, if you are in any doubt as to how you are affected by the Directive, we strongly recommend that you seek appropriate professional advice.
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