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More about the European savings directive
European savings taxation regulations: What changed?
The 2003 European Savings Tax Directive (the "Directive") entered into force on 1 July 2005 and contains the basic provisions of the regulations that the EU Member States have transposed into national legislation. Although the legal scope of the Directive cannot extend outside the EU, its implementation also affects: Jersey, Guernsey, the Isle of Man, Anguila, Turks & Caicos, the Cayman Islands, British Virgin Islands, Montserrat, the Dutch Caribbean and Aruba. Also associated Third Countries are: Switzerland, Liechtenstein, Monaco and San Marino. All countries and territories applying the Directive are referred to below as the "Participating States". The Directive was transposed into Belgian law by the Act of 17 May 2004 and Royal Decree of 26 March 2005, supplemented by administrative circulars and financial sector interpretative documents. From 1 January 2010, certain amendments to the transposition into Belgian law of the Directive shall take effect by virtue of the implementation of the Royal Decree of 27 September 2009. The major change is that Belgium has decided to waive the transitional period as of 1 January 2010, that is, it shall henceforth proceed with the automatic exchange of information.
Why is this regulation being introduced? and how?
Member States had noticed that a resident in Member State A could avoid or reduce tax on revenue from savings via investments in country B when B had favourable tax legislation, such as an exemption from all taxes on income from non-residents' savings.
The Directive seeks to avoid that the choice of investing one's money in a given country is due to this country's tax system. To achieve this objective, the Participating States have introduced a system of an exchange of information. Originally, it had been anticipated that during a transitional period three Participating States ? Belgium, Luxembourg and Austria ? would not proceed with the exchange of information but instead debit a withholding tax.
From 1 January 2010, this transitional period has ended for Belgium, with the result that it has switched to the automatic exchange of information system.
What is the automatic exchange of information?
Under the automatic information exchange system, banks have to disclose various information to their tax authority when paying interest to private individuals resident in another Member State. The tax authority then provides this information to the tax authority of the other Participating State where the customer in question is resident and where he/she is taxed. At last on 31 March 2011, Belgian banks shall, for the first time, provide information on income as described in question 5 received in 2010 for their customers residing in a Participating State other than Belgium.
What information shall be exchanged?
Via automatic disclosure, at last on 31 March 2011, Keytrade Bank shall inform the Belgian tax authority of:
- the identity of customers residing for tax purposes in a Participating State other than Belgium who in 2010 received the income described in question 5;
- their TIN (Tax Identification Number), allowing the fiscal identification of the customers. This piece of information is new and does not currently exist in all the Participating States. Failing this, their place and date of birth shall be provided;
- their place of residence;
- the number(s) of the account(s) to which the income concerned has been credited and these accounts only;
- The amount and type of income concerned
Which income is affected?
Income from investments as envisaged below and falling within the scope of application of the Directive, that being:
- interest obtained on deposits from current accounts, savings accounts and fixed-term deposits
- accrued and capitalised interest earned since 1 July 2005 on debt instruments, these being public and private bonds, zero-coupon bonds ? on which interest is paid on maturity ? plus bank savings certificates with simple or capitalised interest, certain structured bonds and so on;
- dividends from distribution sub-funds of Undertakings for Collective Investment ("UCI") vehicles investing in bonds and money market or cash or mixed UCI vehicles investing partly in debt instruments.
It should be noted that on 31 December 2010, the grandfather clause shall be discontinued. As a reminder, the income from debt securities ? and above all bank savings certificates and bonds ? issued before 1 March 2001 (subject to no new issues being associated with these securities since 1 March 2002) was exempt from withholding tax. As a result, from 2011 onwards, the income from these securities becomes subject to the scope of the Directive and so subject to the automatic exchange of information. Income from the following financial assets are not affected:
- insurance or pension products;
- derivatives (warrants, options and so on);
- UCI vehicles not investing in debt securities
What about UCI vehicles?
A. UCI vehicles that pay dividends UCI dividends received by people affected by the automatic exchange of information are classified as interest payments and fall within the scope of the Directive when:
- the UCI is established in the EU and has a European Passport;
- it is a distribution fund (i.c. a fund that distributes dividends as opposed to a capitalisation fund);
- the assets invested are made up of debt instruments envisaged in the Directive, such as bonds.
This can also involve a mixed fund under Belgian law that invests in equities and bonds to the amount of at least 15% in interest-bearing products as defined in the Directive.
In this case, two situations can arise for the automatic exchange of information:
- The bank receives information and can determine how much of the dividend forms interest: this is the portion of which the tax authority shall be notified.
- The bank receives no information in this respect from the issuer: the entire dividend shall be disclosed.
B. What if the UCI is repaid/sold/redeemed? The capital gains realised on the sales/repayments/redemptions of UCI vehicles by people affected by the automatic exchange of information are classified as interest payments and fall within the scope of the Directive when:
- the fund is established in the EU and has a European Passport;
- the fund holds more than 40% of its assets, or 25% as from 1 January 2011, in debt instruments covered by the Directive.
There are three possible situations for the automatic exchange of information:
- The bank can determine the amount of capital gain representing interest: this portion shall be disclosed to the tax authority.
- The bank receives no information in this respect from the issuer: all the capital gain shall be disclosed.
- The bank is unable to determine the actual amount of the capital gain: in this case the proceeds of the sale/repayment/redemption shall be reported to the tax authority.
In summary, the capital gains covered are those realised on:
- pure bond UCI vehicles;
- mixed UCI vehicles holding more than 40% of their assets ? 25% on 1 January 2011 ? in debt securities.
Am I affected? If so, what does this involve?
The exchange of information system covers private individuals residing for tax purposes in a Participating State other than Belgium such as Germany, Austria, Bulgaria, Cyprus (Greek part), Denmark, Spain (including the Canary islands), Estonia, Finland, France (including the departments d' overseas), Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal (including Madeira and the Azores), the United Kingdom (including Gibraltar), Romania, Slovakia, Slovenia, Sweden and the Czech Republic. If you are affected: the automatic information exchange system shall be applied without any action from you being required. However, your involvement may be requested in the identification procedure or if it is applicable to establish that you should not be affected. For example, if you are a Belgian resident, your income would then be subject to a Belgian withholding tax.
Can I avoid the automatic exchange of information?
It is not possible to avoid the automatic exchange of information if you are affected and receive the income in question. It should be noted that if there is a change of tax residence during the year and this change results in the application of the Directive, the automatic exchange of information shall only involve the income concerned that is received as from changing tax residence.
Are you a diplomat or civil servant (EU, NATO, EUROCONTROL, ...)?
You have completed and provided the bank with the ad hoc documentation (for example the HIS276 form for officials of the European institutions) You are:
- comparable to a non-resident if you have chosen to be exempted from the Belgian withholding tax. You are then included under the automatic exchange of information if you come from one of the Participating States. The documents you have submitted for exemption from Belgian withholding tax (for instance: the HIS276 form of the European institutions) remain valid on 1 January 2010.
- considered as resident if you have chosen not to be exempted from the Belgian withholding tax. You are therefore not affected by the automatic exchange of information.
Which countries fall under the directive?
All EU-member states and some dependent or associated areas.
Members of the EU on 31/12/2009: Belgium, Bulgaria, Cyprus (Greek part), Denmark, Germany, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Spain, Czechia, United Kingdom, Sweden.
Dependent or associated areas: Dutch Antilles, Aruba, Guernsey, Island Man, Jersey, British Virgin Islands and Montserrat.