Taxation

Withholding taxes affecting residents of the European Union (Savings tax Directive- STD)., This nex tax has gone into effect on 1st July, 2005, and in fact forms merely one part of a major tax reform package launched by the European Commission in 1997. As originally drafted, the STD aimed at a uniform 'information exchange' regime to apply across the Union, with all countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities. Because of resistance from EU Member States with strong traditions of banking secrecy, the Commission had to allow Austria, Luxembourg and Belgium to apply a withholding tax (at 15%) until 2009. Many of the UK's offshore financial centres have been forced to join the STD, along with the Netherlands Antilles, Aruba and some European centres (Andorra, Monaco, Liechtenstein and San Marino). Most of these places will also take the withholding tax route, as will Switzerland, which was the hardest nut for the EU to crack. The STD applies to many types of return on savings instruments, all loosely described as interest, when received by individuals, but does not affect interest paid to companies. Under the information exchange system, the identity of recipients will be known to their home tax authorities; when tax is withheld, the identity of the recipient will not be reported, thus preserving confidentiality. See also http://www.lowtax.net/lowtax/html/jswspec.html

The following information applies to U.S. taxpayers:

The U.S. has imposed new withholding tax regulations on remittance of interest, dividends and capital gains to foreign (offshore) banks and brokers, effective January 1, 2001. A U.S. taxpayer, as defined under U.S. laws (e.g. a citizen, resident, green card holder, foreign spouse of a U.S. citizen or anyone who must file a U.S. tax return) is restricted from owning U.S. domestic securities through a foreign bank or broker, unless the IRS Form W-9 is completed. The foreign bank or broker holding the account of a U.S. taxpayer will supply this form and ask the client to make an election whether or not his taxpayer status should be disclosed to the U.S. authorities. An election not to disclose an account results in a prohibition of trading U.S. domestic securities through foreign accounts. U.S. securities broadly means U.S. money market paper, mutual funds, equities, Treasury Bills/bonds and U.S. domestic bonds. Foreign securities (i.e. German, Swiss etc) and a range of international mutual funds (both US dollar or foreign currency denominated) are exempt.

US Taxpayers Face Stiff Fines For Not Detailing Offshore Accounts, by Mike Godfrey, Tax-News.com, Washington 01 July 2005

Thousands of US taxpayers, including US expatriates and foreigners living in the United States, may face steep fines if they failed to file a Treasury Department form detailing their foreign bank accounts by June 30. The requirement obliges any United States person who had more than $10,000 in an offshore account, which can include investment funds, trusts and other types of account, during 2004 to provide details to the Treasury on a little known form called TDF 90-22.1. Accountants are warning that the requirements affect a broad range of people, many of whom are not even aware of the form or its requirements, let alone Thursday's deadline. The types of people that are likely to need to file the form include US citizens working or studying abroad, US expats who have chosen to permanently reside in another country, and foreign nationals who are living in the US. The United States is almost unique in that it requires its citizens to pay US taxes even if they have not lived in America for many years. Taxpayers who fail to file the form now face a fine of up to $10,000. Congress also increased the maximum civil penalty to whichever is the greater between $100,000 or 50% of the value of the offshore account. Penalties may be waived if taxpayers can show "reasonable cause".

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