Jersey To End Banking Secrecy For EU Residents


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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.

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.

This will bring Jersey in line with Guernsey and the Isle of Man, who have already abolished the withholding tax (or “retention tax”) option.

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 Council will bring legislation to the States as soon as possible to effect the change. 

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 those in 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 have a savings account in Jersey, your bank will pass details about your bank account to your local tax authorities, wherever you live in Europe.  This will be done automatically each year, regardless of whether your tax authority has requested information on you. 

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 in Spain.  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    
  • Pensions
  • Employment income    
  • Directors’ fees
  • Immoveable property – ownership and income    
  • Dividends
  • Capital gains    
  • Royalties

On making the announcement, Jersey's chief minister Senator Ian Gorst explained that Jersey had been waiting for the EU to clarify its position.  Following the EU Council meeting in June and the G20 call in July for all jurisdictions to commit to automatic exchange of information, Jersey considers this is the right time to propose the change from the retention tax.

Geoff Cook, Chief Executive of Jersey Finance, the body tasked with promoting the finance industry, said that the timetable was sensible and reflected progress from the EU and wider G20 countries in supporting automatic exchange of information on a truly level playing field. 

EU Tax Commissioner Algirdas Šemeta welcomed the news: “Automatic exchange of information has long been a cornerstone in the EU's fight against tax evasion and is now set to become the international standard. It is the best way of ensuring that every country can collect the revenues it is rightfully due. I welcome Jersey's decision to join the global move towards more openness and greater information exchange. This will help facilitate fairer and more effective taxation, in Europe and globally.

This will be another tool for 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.

If you are you are resident in Spain, you 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.

Expatriates in Portugal should note that Jersey, along with Guernsey, the Isle of Man and Gibraltar, remains on the official blacklist of territories that provide a more favourable tax regime. This has consequences for taxpayers since income and gains derived from assets held in any of the blacklisted territories are taxed at a penal rate of 35% in Portugal, which is higher than the usual rates.   Owning assets in the UK offshore centres is therefore not the most tax efficient way of holding your capital.  

There are effective, fully legitimate tax planning arrangements available in Spain, France, Portugal, Cyprus and Malta 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.

23 August 2013

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.