| EU Savings Directive 2005 |
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In its effort to "eliminate harmful tax competition" (or create tax hegemony) and increase information exchange across the continent, the European Union drafted the EU Savings Directive 2005 which has been adopted by all of the EU members and dependent territories, Lichtenstein and independent member Switzerland (except Bermuda). Liechtenstein is not an EU member but generally follows the lead of Switzerland on these matters. Both were signatories, but only with special provisions described below in further detail. On a somewhat strange but true note, Bermuda was apparently completely forgotten. While this may seem absurd, it has been corroborated by several independent sources. There is no clear reason why Bermuda was left out of the EU Savings Directive. The EU Savings Directive only applies to natural persons residing in an EU member state. It does not apply to foreign persons (including EU citizens) living outside of the EU member states. This measure also does not apply to companies. A few jurisdictions like BVI and Isle of Man recently made the decision to abolish all corporate taxes for both resident and non-resident companies in an effort to halt pressure from foreign governments and bodies such as the EU. Luxembourg took similar measures limiting the impact of the Directive on its economy and infuriating many other high tax EU member states. The EU Savings Directive contains two main provisions: information exchange and withholding tax. Information ExchangeAll countries are obligated to report interest and similar income earned on deposit accounts of citizens of other member states to the tax authorities including the names and personal information of the account holders. A few countries negotiated to avoid this provision; instead opting to impose a withholding tax on the account holder: Switzerland, Lichtenstein, Luxembourg, Austria, British Virgin Islands, Isle of Man, Jersey, Guernsey, Belgium, Andorra, Turks and Caicos. Isle of Man, Jersey and Guernsey give the account holder the option of a Retention Tax or allowing information exchange. Withholding TaxThe withholding tax imposed on foreign individual account holders was initially set at 15% increasing to 20% on January 1, 2008 and eventually to 35% beginning July 2011. The tax authorities of each state withhold the amount keeping 25% for themselves. They then remit a lump sum representing the other 75% to the tax authorities of the appropriate government. Individual information is not exchanged and thus privacy is preserved.
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