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04/04/2005
Which countries are affected?
A new directive from the EU will be effective on the 1st July 2005. This directive will tax incomes made on remunerative accounts but only concerns private accounts. We can distinguish two groups:
Countries with direct application:
- Some EU countries:
France, Great-Britain, Ireland, Germany, the Netherlands, Italy, Spain, Portugal, Greece, Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Slovenia, Malta and Cyprus.
- And some associated territories :
Monaco, Andorra, Lichtenstein, San Marin, Gibraltar and some places in the Caribbean - Countries offering a deduction at the source :
Belgium, Luxemburg, Austria, Switzerland, Jersey, Guernsey and the Isle of Man all benefit from a particular status.
How does it work?
Countries with direct application:
If you are an EU resident and beholder of an active account in another country of the EU, your bank will contact the fiscal administration of its country to declare the interests credited to your account. The administration of this country will then transfer this information to the authorities of your country of residence.
- Practical examples:
1) You live in France and have a bank account in an English bank. When your bank will credit your account with the interests earned during that period, this bank will also contact the British fiscal administration. This information will then be transmitted to the French tax administration, which will then be able to tax you on your earnings in England.
2) You live in France and you are a customer in a bank which does not credit traditional bank accounts. In this case, no information will be communicated because you haven't received any money.
Countries offering a deduction at the source:
Countries in this group offer a different option from the direct application. The bank will automatically take 15% without communicating details on your account to any administrations. The bank will then be in charge of paying back all the interest generated to the administration of its country.
- Practical examples:
You live in France and have a bank account in a Swiss bank or in a bank on the Isle of Man. When your bank pays you interest, it automatically deducts 15% of your earnings. The bank will then pay taxes on this income without giving out any information about your account to your local authorities.
Is this law threatening the confidentiality of my activities?
We would like to remind you that this directive only applies to individuals and will not affect you in any way if your bank account is a business account.
If you are the beholder of a private account in one of our partners' bank, you have to distinguish these different cases.
- You are the beholder of an account in Riga or your account isn't remunerated :
No confidentiality hassle. The bank does not have to communicate your details since you have not received any income.
- You are the beholder of an account in JERSEY, GUERNSEY or on the Isle of Man or an account in a bank from the second group :
We advise you to choose the option of a deduction at the source. In fact, the deduction of 15% will be by far less than the deductions made in your country of residence. Moreover, no information will be given to any tax administration.
- You are the beholder of an account in London or your bank is located in a country of the first group and pays you interest :
This situation is the most delicate. The amount of interest earned will be communicated to the French authorities which will then find out about your personal account offshore. Not only will you be taxed on the small amount you have earned but furthermore an investigation could be carried out by the administration. We highly recommend you to get in touch with us to consider transferring your capital to a more attractive bank.