There has been some good news out this week that will please those investors who have assets placed offshore in deposit based products.
A loophole has been discovered in the EU Savings Tax Directive that will protect these investors from back tax on around £1.3bn worth of assets.
The EU Savings Tax Directive is due to come into force on the 1st of July 2005, as long as all criteria for its introduction have been met by then. The Directive has been designed as a clamp down on cross EU border tax evasion and its ultimate objective is the automatic cross border exchange of information relating to the taxation of savings income.
39 countries have signed up to the Directive, some were more willing to do so than others and some, like Jersey, only agreed to accept the new legislation after external pressure was placed upon them by other EU member states. As a result some of the more reluctant jurisdictions like Jersey, Guernsey and the Isle of Man have managed to elect to impose a withholding tax on individuals with affected assets instead of breaching their personal privacy with the automatic exchange of information.
This means that individuals with offshore financial structures and products including offshore bank accounts, fixed rate deposits and certain investment funds which are located in the offshore jurisdictions applying the withholding tax option may be subject to automatic taxation at a rate of 15%, rising incrementally to 35% by 2011.
However, investors who have certain deposit accounts, including those who have invested in one of 157 structured products sold via the UK financial market, found out this week that they will not be required to declare the interest they have earned before July 1st 2005.
In the Directive’s legislation it was detailed that fixed term deposit accounts held in one jurisdiction by a resident of another jurisdiction should either suffer the taxation at source on interest received or the details of the product, interest received over the investment’s lifetime and the investor’s personal information would be passed to the tax authority in the country in which the investor was resident to check against the investor’s tax declaration.
However, external pressure has been placed on the European Union by a number of jurisdictions to only tax or require the declaration of interest earned on these deposit accounts after the July 1st introduction date. The EU has had to give in to this pressure and this has released a significant potential taxation or information sharing burden and many investors have been breathing a collective sigh of relief as a result!
For an investor with a fixed term structured product due to mature at the end of 2005 this means that he will only be affected on the interest he earns between the 1st of July and 31st of December 2005.
It is estimated that the assets held in affected products amount to £1.3bn worth of assets.
If you would like to find out more about the EU Savings Tax Directive and how to legally avoid it, request your copy of The Offshore Advantage today. There is a whole section dedicated to this Directive, who it will affect, how it will affect them and how they can avoid it. Don’t delay however, once the Directive comes into force you may incur a significant loss of privacy and wealth protection.
