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Does the savings directive apply to me?
The European Savings Tax Directive (EUSD) may apply to you if you are a resident in a European Union country. Presently the European Union comprises the UK, Ireland, France, Germany, Netherlands, Belgium, Italy, Luxembourg, Spain, Portugal, Greece, Austria, Sweden, Finland, Denmark, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, Romania and Bulgaria.
Individuals resident for tax outside the EU are generally not affected, although if you hold a passport issued by an EU Member State you should also read on.
The Cayman Islands, The Isle of Man, Jersey, Guernsey and Switzerland are not part of the EU and so individuals resident in those jurisdictions are not affected.
The EUSD only relates to individuals, and does not apply to corporate or trust accounts.
Background
The EUSD is an agreement between the member states of the European Union to automatically exchange information with each other about customers who earn savings income in one EU Member State but reside in another. This means that, for example, where a resident of Germany holds a bank account in the United Kingdom, the UK bank will provide details of interest payments on that account to the UK Revenue. The UK Revenue will in turn provide that information to the German tax authorities. This is known as "automatic exchange of information" and enables the German tax authority to compare the amount of income declared by that individual on his or her own German personal tax return with the information provided under the EUSD.
Although the EUSD is centred on the automatic exchange of information, three EU Member States (Austria, Belgium and Luxembourg) have opted to apply a retention tax instead. For these jurisdictions, this is the default position, where banks automatically withhold tax, initially at a rate of 15%, from interest paid to residents of other EU Member States. The rate of retention tax will increase to 20% from 1 July 2008 and 35% from 1 July 2011. The rate of 35% will continue until such time as agreements have been reached for the automatic exchange of information.
Although the Isle of Man is not part of the EU, it has voluntarily agreed, along with the Cayman Islands, Jersey, Guernsey, Switzerland, Monaco and a number of other non-EU jurisdictions, to apply similar provisions. The Isle of Man and the Channel Islands have decided to follow the same withholding tax option as adopted by Austria, Luxembourg and Belgium. No information is exchanged where a withholding or retention tax is applied. However, customers of banks located in those jurisdictions which apply a withholding tax will generally also have the option of electing for exchange of information and thus continue to receive their interest payments gross.
Will it affect me?
This depends on a number of factors, the principal of which is where you live. It is very important that you ensure that you keep us informed of any changes to your residential address (rather than any correspondence address), as this may affect your status under the Directive.
Individuals resident in an EU Member State
If you are an individual resident and domiciled in an EU Member State and you receive interest payments on an account held with Cayman National then you will be affected by the EUSD.
Individuals who are not resident in the EU, but hold a passport issued by an EU Member State
If you are not resident in the EU, but hold a passport issued by an EU Member State then we will treat you as falling outside of the scope of the EUSD on the evidence of the documentation you have provided to support your permanent residential address. We will treat you as unaffected by the Directive until such time as you move to live in an EU Member State.
Individuals resident in certain EU States, who are not EU domiciled
If you are a resident of certain EU States, such as the UK or Ireland, but are not domiciled in that State for tax purposes, then you may be outside of the scope of the Directive, and in such circumstances we will treat you as exempt for the purposes of the EUSD provided that you have confirmed your non-EU domicile status to us. This will need to be supported by a certified copy of your passport showing your identity and place of birth as well as a certified copy of any correspondence between yourself and your tax authority about your non-domicile status. Alternatively, we may accept a certificate from a professional such as your accountant or tax lawyer confirming your non-domiciled status for tax purposes. It is recognised that proof of non-domicile for tax purposes is generally difficult to obtain. We regret that are unable to advise you on your domicile status. If you are unsure, your lawyer, accountant or financial adviser will be able to assist you in this matter
Accounts held by companies or certain types of trust
If you have accounts held in a company structure or held in trust then the interest payments on these types of account are currently outside the scope of the EUSD and unaffected. However, "Interest in Possession" trusts are subject to the Directive if the beneficiary is resident in the EU.
If you are affected by the EUSD, interest payments made to you will be paid net of the retention tax. The retention tax is the automatic default and will be applied unless you elect for the exchange of information option or have certified your exemption to our satisfaction.
The retention tax will only be deducted when interest is capitalised to your account, or on maturity of fixed deposits. If we retain tax from interest payments made to you, we will pass such retentions to the Isle of Man Assessor of Income Tax from time to time. The only information that we will provide to the Isle of Man tax authorities will be that of your country of residence. Where tax is retained, we will not provide details of your name or address to either the Isle of Man Tax Authorities or to any other body.
How do I elect for exchange of information
If you elect for exchange of information, then no tax will be deducted from interest payments made to you. Instead, details of your identity and residence, along with details of the amount of interest paid and the period to which it relates, will be provided to the Isle of Man tax authorities.
The Isle of Man tax authority will in turn provide this information to the EU Member State in which you are resident. It is our understanding that this exchange of information does not act as a substitute for your existing duty to disclose your interest payments; you will need to carry on submitting your interest earnings on your tax returns as appropriate.
If you wish to elect for exchange of information, please contact us
Is there an alternative to the retention tax or exchange of information?
Yes. If you are resident for tax purposes in an EU Member State, then you can apply to your tax authority for a tax exemption certificate. On receipt of this tax exemption certificate, we will make no deduction of retention tax, nor will any disclosure of your information be made.
It is understood that these tax exemption certificates may be difficult to obtain, although the EU Member State tax authorities are obliged to provide these certificates within two months of your request. In such instances, we would ask you to write to us detailing your understanding of your tax exempt status and provide us with copies of your request to your tax authority for your tax exemption certificate. In the absence of appropriate documentation from you, a retention tax will be applied to your interest payments unless you opt for the exchange of information.
Please bear in mind that these tax certificates have a maximum useful life of 3 years and apply only to the accounts specified on the certificate. A new account opened will require a new certificate. Electing for disclosure may be simpler for you.
Will these changes mean that I should pay more tax?
No. On the basis that you are already declaring the interest received by you to your home tax authorities, these changes will have no impact upon the overall level of tax that you pay if you elect for exchange of information.
If retention tax is deducted from your account, you may request a tax paid certificate from us, which you can then present to your tax authority for crediting against your tax bill. Any retention tax deducted from payments of interest will be available for credit (i.e. offset) against your tax liability in the EU Member State in which you are resident.
How do these changes affect customer confidentiality rules?
These changes will have no impact upon customer confidentiality unless you elect for exchange of information. If you elect for exchange of information then relevant details regarding the account and the interest payment will be provided to the Isle of Man tax authorities who in turn will provide that information to the tax authorities of the EU Member State in which you are resident.
If you do not elect for the exchange of information option then no information regarding you or your Cayman National bank account will be provided to either the Isle of Man tax authorities or the tax authorities of the EU Member State in which you are resident.
Does the EUSD just relate to bank accounts?
No. the EUSD also extends to a number of other forms of "saving income", for example interest from, and the proceeds of sale or redemption of, certain bonds and income from certain types of investment funds. Further details can be obtained from Isle of Man Finance, a part of the Isle of Man Government's Treasury division, at www.isleofmanfinance.com
Do I have to give instructions for each account I have?
No. Where appropriate, retention tax will automatically be applied to all your accounts. There is no need to give an instruction for each of your accounts, as we will apply your tax status to you as an individual, rather than your accounts.
Retention tax will be applied in the absence of an instruction from you. If you elect to have exchange of information, then we will apply this to all your accounts.
If you obtain a tax certificate from your tax authority, then your exempt status will be allocated to each of the accounts listed on the certificate.
Can any of this change in the future?
Yes. We have interpreted the EUSD and the resulting Isle of Man legislation using the Isle of Man Treasury's Guidelines. These are guidance notes and they can change over time. We, along with all other licensed institutions, must ensure that we are up to date with all regulatory requirements. Our interpretation of requirements may therefore change in future.
Is there any way to make this easier for me?
We have several options available to you, which may simplify your tax position and make the preparation of your tax returns a much easier process. For bank account interest there is a possibility to roll up the interest on call accounts until closure of the account rather than having this paid monthly or quarterly. This means that the interest is only credited and therefore stated on your tax return in the year that you decide to close the account. This may be at any time of your choosing in the future, for example when you retire, when your income level has reduced, or you change your country of residence. Consequently, your tax returns will be simplified and you can plan when you will pay the tax on your savings.