Jersey is to drop the withholding tax option under the EU Savings Tax Directive. It will be mandatory for financial institutions to automatically exchange information on their clients’ bank accounts, effectively bringing the era of banking secrecy to an end in the offshore centre.
The Council of Ministers announced in August that it will formally request the States of Jersey to implement compulsory automatic exchange information for EU savings tax agreements.
The official start date will be 1st January 2015, though financial institutions will be allowed to start earlier if they wish to harmonise operations with Guernsey and Isle of Man.
The Savings Tax Directive came into force in July 2005. It was established to ensure that everyone living in the EU pays tax on their interest earnings to their country of residence regardless of whether they declare the income or not, thus ending the practice of ‘hiding’ capital in foreign bank accounts to receive tax free interest.
Each Member State is obliged to collect bank account data and forward it to the tax authority of the owner’s country of residence.
Third party signatories like the Channel Islands, Isle of Man and Switzerland were allowed to offer an alternative withholding tax option to clients. The initial tax rate was 15% but has increased to 35%.
Guernsey and the Isle of Man dropped the withholding tax option in July 2011, and now Jersey will do the same.
If you live in Spain and have a savings account in Jersey, your bank will pass details about your bank account to the Spanish tax authorities. This will be done automatically each year, regardless of whether the Spanish authorities have requested information.
Your local tax authority will most likely compare the information received with that provided by you on your tax return, and also on Form 720. If you have not been declaring everything correctly they will probably look for payment of the outstanding tax plus interest and penalties.
The information exchanged under the Savings Tax Directive is:
- Your name, address and residency details
- Details of the source of the funds
- The amount of savings held
- The period to which it relates.
Currently, this applies to savings income. Over the coming years the Directive will be extended so information on the following will also be automatically exchanged:
- Life insurance products
- Employment income
- Directors’ fees
- Immoveable property – ownership and income
- Capital gains
This will be another tool for the Spanish tax authorities to use in their fight against offshore tax evasion. It will help them collect unpaid taxes and ensure that foreign bank accounts are fully taxed in future.
All Spanish residents had to declare all overseas assets worth over €50,000 in April this year on Form 720. This was for assets as at 31st December 2012. The next assessment point is the end of this year, when new assets or those which have increased in value by over €20,000 need to be reported.
The tax penalties for non-disclosure are very high and can be devastating. In today’s world the Spanish authorities are likely to find out about undeclared assets – it really is only a matter of time.
There are effective, fully legitimate tax planning arrangements available here in Spain which can provide significant tax benefits for your investment income and wealth. You should seek professional advice on how best to structure your assets to be as tax efficient as possible.
For the South of the island please contact Peter Worthington, Senior Partner at Blevins Franks Mallorca, on 971 719 181 or firstname.lastname@example.org.
For the North of Mallorca contact local Partner Rafael Belloch, on 971 867 781 or email@example.com.
Blevins Franks Seminar – North Mallorca
Reporting on Form 720.
Your assets as at 31 December. Are they tax efficient?
We need to talk.
Our seminar considers the implications of Form 720, the impact of exchange of information, and what steps you can take before 31st December to make your assets more tax efficient.
Port de POLLENSA, Illa d’Or Hotel
Thursday 3 October, 11 for 11.30am start
Tel: +34 971 719 181 / +34 971 867 781 / firstname.lastname@example.org
For more information and personalised advice, contact Blevins Franks on +34 971 719 181.
To keep in touch with the latest developments in the offshore world, check out the latest news on Blevins Franks Tax & Wealth Management Specialists.
Related articles to tax for foreigners living in Spain.
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This article was written on the 10th of September, 2013.