The European Savings Directive (EUSD)

Simply put, the EUSD which came into effect in July 2005, is an agreement between the EU Member States to automatically exchange information about any customers who earn savings income in one EU State but who reside in another EU State. This is known as the ‘automatic exchange of information option’ and it is the ultimate objective of the Directive.

The savings directive applies in 42 jurisdictions: 27 Member states, 5 non EU countries (Switzerland, Liechtenstein, Monaco, Andorra and San Marino) and 10 dependent and associated non-EU territories (Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles as well as the Turks and Caicos Islands).

Some of those “offshore” territories mentioned above, opted to retain tax at source and pass that to the country of residence of the account holder anonymously, thus avoiding any exchange of information concerning the account holder.

The tax retention rate was based as follows:

15% in the first three years (2005-07-01 – 2008-06-30),

20% in the next three years (2008-07-01 – 2011-06-30), and

35% after 2011-07-01.

There was to be a “transitional period” between the implementation of tax retention and full exchange of information for these “offshore” territories. That period was not specified but would end once certain conditions were unanimously agreed.

Notwithstanding that the transitional period has not ended (and indeed may never end?), as from 1st July 2011, the Isle of Man and Guernsey will stop applying the tax retention system and move to automatic exchange of information .

On exchange of information, interest is paid gross but the customer's identity, their address, the bank or investment house where their affected assets are held, the level of ‘savings income’ received and the period over which it has been received, are passed automatically by the tax authority in the country in which the money is ‘housed’, to the tax authority in the country in which the individual resides.

Thus it is incumbent on the account holder to declare that investment income on their personal tax return in the country in which they are tax resident.

Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, this information does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.

Sovereign - Consultoria Lda.
Parque Empresarial Algarve, Lote 8, Porta 21
8400-431 Lagoa
Portugal

Tel: +351 282 340 480
Fax: +351 282 342 259

www.SovereignGroup.com/portugal