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How the European Union Savings Tax Directive (EUSD) will affect Isle of Man residents 13 July 2005

    The EUSD came into force on 1 July 2005. Its main purpose is to allow tax authorities to share information about savings income payments made to individuals. It will help to ensure that savers and investors pay the correct tax on their savings income in their country of residence.

    Although the Isle of Man is not part of the EU, we agreed to introduce measures equivalent to the EUSD. This was on the condition that all 25 EU Member States , European third countries and associated territories also adopted either the EUSD or equivalent measures. Our preparations for implementation of the EUSD included entering into bilateral agreements with each of the EU Member States and the introduction of the Income Tax (Retention of Tax and Exchange of Information) Order 2005.

    The aim of the EUSD is to have automatic exchange of tax information between countries; however, during a transitional period, it allows either for the exchange of information or for a withholding tax to be deducted from the savings income. Most of the countries within the EU, including the United Kingdom, have introduced the exchange of information regime. The Isle of Man, three EU Member States (Austria, Belgium and Luxembourg), and many of the non-EU countries involved have introduced the transitional withholding tax system (that we have called retention tax). Even within the withholding tax system, people can elect for exchange of information if they wish.

    It is important to note that the Isle of Man has agreements with the EU Member States only. Information or retention tax can only pass between countries and jurisdictions having agreements with each other.

    1. See list of EU Member States at the end of the News Release.
    2. See list of third countries and associated territories at the end of the News Release.

    How will the EUSD affect Isle of Man residents?

    Isle of Man residents with savings accounts in the Isle of Man will not be affected.

    Isle of Man residents who have a savings account in an EU Member State, such as the UK, will be affected by the EUSD.

    Where the EU Member State is operating exchange of information, it will send the Assessor information about the interest paid to the Isle of Man resident.

    Where the EU Member State is operating a withholding tax, this will be deducted from the interest paid and 75% of the tax will be sent to the Isle of Man Treasury. The rates of withholding/retention tax will be 15% for the first 3 years, 20% for the subsequent 3 years and 35% thereafter.

    I have recently received a letter from National Savings & Investments (NS&I) regarding the EUSD. What should I do?

    Accounts or products (including premium bonds) held with NS&I are UK accounts and therefore may be subject to the EUSD. Isle of Man residents who hold accounts with NS&I will have details of their investments passed to the UK Revenue & Customs who will pass that information to the Assessor here. No retention tax will be deducted in most cases .

    All taxable income must be declared by Manx residents on their income tax return forms3.

    For accounts taken out after 1 January 2004 NS&I are now required by the UK authorities to hold proof of identity of account holders in the form of:

    • A certified copy of a passport or identity card; and
    • A certified copy of a letter or notification from Income Tax Division confirming their name and current address; and
    • Details of their town and place of birth and their tax identification number.

    This is a one-off exercise and the Income Tax Division will help by certifying copies of passports and issuing appropriate letters when they are needed. Please note that Isle of Man residents do not have tax identification numbers.

    Although the EUSD came into force on 1 July 2005 it was not necessary to provide proof of identity by this date.

    For information regarding the EUSD please contact General Enquiries on 685400.

    M Couch Assessor of Income Tax
    Date 11 July 2005

    3 All three types of Fixed Rate Savings Bonds pay interest net of normal UK tax at 20%.

    EU Member States:
    Austria Belgium Cyprus Czech Republic Denmark Estonia Finland
    France  Germany Greece Hungary Ireland Italy Latvia
    Lithuania Luxembourg Malta Netherlands Poland  Portugal  Slovakia
    Slovenia Spain Sweden United Kingdom      

    Third countries, associated and dependent territories involved:
    Andorra Anguilla Aruba British Virgin Islands Cayman Islands Guernsey
    Isle of Man Jersey Liechtenstein Monaco Montserrat Netherlands
    Antilles San Marino Switzerland Turks & Caicos Islands    

    13th July 2005

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