EU's Savings Tax Directive and Panama

The European Union Savings Tax Directive (STD), which went into effect on 1st July, 2005, is one part of a major reform package launched by the European Commission in 1997. As originally drafted, the STD was aimed at a uniform 'information exchange' platform to apply across the whole Union and associated countries. All countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities. It is important to note that as Panama is not a member of the EU nor one of the UK associated offshore havens, the STD does not apply.  Yet wires between the EU and Panama flow freely.

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 were forced to join, along with the Netherlands Antilles, Aruba and some European centres: Andorra, Monaco, Liechtenstein, San Marino and Switzerland.

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.  In July 2008, the rate of tax withheld from returns on savings under the EU's Savings Tax Directive increased from 15% to 20%, and in three years' time will come the final increase to 35%

Who Is Affected?

The Directive applies to European persons who are resident in the 25 Member States of the EU or the Crown Dependencies of the UK (Jersey, Guernsey and the Isle of Man). Any new countries joining the EU will be obliged to accept the information-sharing variant of the Directive, and their residents will be caught by the Directive.

If you are an individual (natural person) who is resident in an EU Member State, and earn bank interest or other savings income (as defined below) on deposits or investments held in your own name in another EU Member State, third country or territory, then it is likely that you will be affected by the STD.  Panama structures, banks, investments are not affected.  Call for more details.

There are four main categories of savings income under the scheme:

• Interest paid to bank or fund accounts;
• Interest paid when a debt is repaid or sold;
• Distributions made by certain unit trusts and other collective investment funds which have invested more than 15% of their investments in debt-claims;
• Accumulated income paid out when units in certain collective investment funds that have invested more than 40% of their investments in debt-claims are redeemed or sold.

Savings income is essentially interest earned on bank deposits, interest from redemption of bonds and income from certain types of investment funds.

Most other types of income (for example, dividends on ordinary or preference shares of companies, salary and pension payments) fall outside the definition and are therefore outside the scope of the STD.

Why you should consider a serious offshore jurisdiction like Panama

The UK tax authorities forced a number of top banks, including Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB to disclose details of their customers' offshore accounts. Eventually just 50,000 people took advantage of an amnesty, which capped penalties at 10% of any unpaid tax.

The tax authority is now continuing the task of pursuing the remaining 350,000 people, including an unknown number of account holders whose names will have been revealed by information provided under the Savings Tax Directive.

The European Union introduced its Savings Tax Directive in an attempt to gain control of previously untaxed income flows, with particular attention being paid to offshore jurisdictions such as those in the UK's Channel Islands, the Caribbean, and European countries such as Luxembourg, Liechtenstein and (especially) Switzerland.

Panama does NOT co-operate with any countries, has no information sharing agreements, tax treaties.  Panama is not just an offshore jurisdiction.  Privacy in business is simply the culture of Panama.  Panama's privacy laws pre-date its evolution into an offshore banking jurisdiction.  In fact, the most common corporation type in Panama is called "Sociedad Anonima" or S.A. for short.  "Sociedad Anonima" is Spanish for "Anonymous Company".   Panama explicitly protects the identity of the ownership of Panama companies with strong secrecy laws. 

Billions of Euros are flowing out of EU control

Billions of euros in assets have reportedly flown to parts of the world where the EU directive cannot reach such as Hong Kong, Panama and Singapore, while in August 2005 alone, shortly after the directive entered into force, nearly EUR 7 billion came out of Swiss accounts into Luxembourg Sicav II bonds, which are outside the scope of the Directive.

It is generally thought that Panama, Hong Kong, Singapore, and Dubai have benefited significantly from increased inflows of cash from European investors since the introduction of the directive.

How to Escape the Savings Tax Directive

It's fairly obvious that the most effective way to escape the effects of the Savings Tax Directive (STD) is to utilize a country like Panama which has not signed up to the STD, or if that is impossible, to make sure that you don't have investments that will be caught by the STD.

Entities Outside The Scope Of The STD

Legal entities whose profits are taxed under the general arrangements for business taxation and similar entities (e.g. companies, partnerships and limited partnerships) are not relevant payees and payments are not yet included the Directive, which only applies to individuals. Trusts and foundations are equally exempt in most territories, especially in Panama where foundations are governed by strong privacy laws.  Call for details.

Thus, International Business Companies, trusts, foundations and other tax efficient vehicles in Panama are in high demand in the light of the STD.  In Panama you have the ability to form both IBC’s and Foundations in a jurisdiction that IS NOT part of the STD and does NOT pass along tax information to other countries. You achieve both Asset Protection and Tax minimization.

For more information call.  You may also find our FAQ on the European Tax Direct Directive interesting.

The European Union Savings Tax Directive (STD), which went into effect on 1st July, 2005, is one part of a major reform package launched by the European Commission in 1997. As originally drafted, the STD was aimed at a uniform 'information exchange' platform to apply across the whole Union and associated countries. All countries agreeing to report interest on savings paid to the citizens of other Member States to those States' tax authorities. It is important to note that as Panama is not a member of the EU nor one of the UK associated offshore havens, the STD does not apply.  Yet wires between the EU and Panama flow freely.

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 were forced to join, along with the Netherlands Antilles, Aruba and some European centres: Andorra, Monaco, Liechtenstein, San Marino and Switzerland.

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.  In July 2008, the rate of tax withheld from returns on savings under the EU's Savings Tax Directive increased from 15% to 20%, and in three years' time will come the final increase to 35%

Who Is Affected?

The Directive applies to European persons who are resident in the 25 Member States of the EU or the Crown Dependencies of the UK (Jersey, Guernsey and the Isle of Man). Any new countries joining the EU will be obliged to accept the information-sharing variant of the Directive, and their residents will be caught by the Directive.

If you are an individual (natural person) who is resident in an EU Member State, and earn bank interest or other savings income (as defined below) on deposits or investments held in your own name in another EU Member State, third country or territory, then it is likely that you will be affected by the STD.  Panama structures, banks, investments are not affected.  Call for more details.

There are four main categories of savings income under the scheme:

• Interest paid to bank or fund accounts;
• Interest paid when a debt is repaid or sold;
• Distributions made by certain unit trusts and other collective investment funds which have invested more than 15% of their investments in debt-claims;
• Accumulated income paid out when units in certain collective investment funds that have invested more than 40% of their investments in debt-claims are redeemed or sold.

Savings income is essentially interest earned on bank deposits, interest from redemption of bonds and income from certain types of investment funds.

Most other types of income (for example, dividends on ordinary or preference shares of companies, salary and pension payments) fall outside the definition and are therefore outside the scope of the STD.

Why you should consider a serious offshore jurisdiction like Panama

The UK tax authorities forced a number of top banks, including Barclays, HSBC, HBOS, Royal Bank of Scotland and Lloyds TSB to disclose details of their customers' offshore accounts. Eventually just 50,000 people took advantage of an amnesty, which capped penalties at 10% of any unpaid tax.

The tax authority is now continuing the task of pursuing the remaining 350,000 people, including an unknown number of account holders whose names will have been revealed by information provided under the Savings Tax Directive.

The European Union introduced its Savings Tax Directive in an attempt to gain control of previously untaxed income flows, with particular attention being paid to offshore jurisdictions such as those in the UK's Channel Islands, the Caribbean, and European countries such as Luxembourg, Liechtenstein and (especially) Switzerland.

Panama does NOT co-operate with any countries, has no information sharing agreements, tax treaties.  Panama is not just an offshore jurisdiction.  Privacy in business is simply the culture of Panama.  Panama's privacy laws pre-date its evolution into an offshore banking jurisdiction.  In fact, the most common corporation type in Panama is called "Sociedad Anonima" or S.A. for short.  "Sociedad Anonima" is Spanish for "Anonymous Company".   Panama explicitly protects the identity of the ownership of Panama companies with strong secrecy laws. 

Billions of Euros are flowing out of EU control

Billions of euros in assets have reportedly flown to parts of the world where the EU directive cannot reach such as Hong Kong, Panama and Singapore, while in August 2005 alone, shortly after the directive entered into force, nearly EUR 7 billion came out of Swiss accounts into Luxembourg Sicav II bonds, which are outside the scope of the Directive.

It is generally thought that Panama, Hong Kong, Singapore, and Dubai have benefited significantly from increased inflows of cash from European investors since the introduction of the directive.

How to Escape the Savings Tax Directive

It's fairly obvious that the most effective way to escape the effects of the Savings Tax Directive (STD) is to utilize a country like Panama which has not signed up to the STD, or if that is impossible, to make sure that you don't have investments that will be caught by the STD.

Entities Outside The Scope Of The STD

Legal entities whose profits are taxed under the general arrangements for business taxation and similar entities (e.g. companies, partnerships and limited partnerships) are not relevant payees and payments are not yet included the Directive, which only applies to individuals. Trusts and foundations are equally exempt in most territories, especially in Panama where foundations are governed by strong privacy laws.  Call for details.

Thus, International Business Companies, trusts, foundations and other tax efficient vehicles in Panama are in high demand in the light of the STD.  In Panama you have the ability to form both IBC’s and Foundations in a jurisdiction that IS NOT part of the STD and does NOT pass along tax information to other countries. You achieve both Asset Protection and Tax minimization.

Call for details relating to your situation or read our EU Tax Directive FAQ .