European Savings Tax Directive (EUSTD)

On July 1st 2005 a new legislation came into force, the European Savings Tax Directive (EUSTD). It is an agreement between all European member states and applies to individuals who earn interest in one country but have their residence in another.

This affects only residents in one of the EU countries, but the British Virgin Islands, Anguilla, Turks & Caicos Islands, Cayman, Isle of Man and Channel Islands have also adopted the EUSTD because of their status as dependent territories from the U.K.

It consists of two systems:

Information exchange and withholding tax; individuals who are subject to the EUSTD have to choose between the two options. Withholding tax of 15% is levied on interest earned after 1 July 2005. This tax rate has increase to 35% w.e.f. 2011.

Exchange of information means an agreement to report interest paid to the individual’s resident state’s tax authorities. This includes the disclosure of the recipient’s identity. As this interferes with the tradition of banking secrecy in some member states, these will adopt the withholding tax system, which does not include the reporting of the recipient’s identity.

Other territories: Andorra, Anguilla, Aruba, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey, Liechtenstein, Monaco, Montserrat, Netherlands Antilles, San Marino, Switzerland, Turks & Caicos