Article by: Sam Orgill sam.orgill@proactpartnership.com Published: 24/08/2007

EU SAVINGS TAX

If you receive gross interest on bank deposits outside Cyprus then you must declare and pay the defence levy tax on interest earned to the end of December 2005. A new tax introduced by the EU Savings Tax Directive is designed to ensure that EU citizens pay tax on bank deposits and investment income.

In Cyprus the EU Savings Tax is applied as the Defence levy. If you received gross interest on bank deposits outside you should do a return to the end of 2005 for interest paid and pay the tax here. Return and payment of defence levy tax is due by the end of January 06.

Generally the Defence Levy Tax rate is 10% on bank interest and 15% on dividends but you can claim a reduction to 3% in certain cases.

Never Have Done

Now this is tax on income no one has declared or paid tax on before. So why should you start now and how will they find out?

Remember the EU Savings Tax Directive came into force on 1st July 2005 and all interest will be declared by the banks to the tax authorities of your resident country. This system was set up by all banks writing to their expatriate clients and asking for declarations which included your local tax reference number.

If you submitted this information then, with exchange of information between countries and banks, there is an easy computer test the Inland Revenue can apply to find out the exceptions - Cross reference all bank declared interest by tax reference number to Cyprus Inland Revenue returns of declared bank interest by tax reference number. The computer program will pick out everyone who has declared no bank interest contrary to the bank’s information. Then an investigation of everything begins.

Reckoning

Country’s like Germany, France & Cyprus ran amnesties last year for those holding undeclared offshore holdings. These opportunities have now gone. Cyprus has also set up Expatriate Pensions section of the Inland Revenue to track pension and EU Savings Tax returns.

More than one client has gone to the tax office only to be registered for tax back three years. This will lead to potential assessment for three years and penalties for late payment.

The art of discretion is still alive and kicking and professional advice to discuss how to best declare and organise your EU Savings Tax affairs can save you time and money. For example we saved a client £180 in January by recording an accurate assessment with full use of allowances.

Do’s & Don’ts

Don’t panic if you have not declared bank interest yet but time is just about up on managing the situation.

Don’t run to the tax office to put your affairs in order – take advice first.

Don’t forget paying the tax might be the cheapest option.

Don’t pay 15% EU Savings Tax in Jersey or Switzerland because you will be trapped into a rate rising to 35%, stand out when you move it and in any case Cyprus is only 10%. You can pay nothing.

Don’t move from shares & bank deposits to purely funds by using a restrictive UK based investment bond.

Do review your savings and investments and move the money into the most tax efficient holding.

Do use an offshore portfolio bond to maximise your freedom to hold cash, deposits, fixed interest gilts & bonds, shares and funds.

Do declare and pay EU Savings Tax where due – in Cyprus the flat 10% Defence Levy it is less than elsewhere.

Review and Do

Again ignoring tax issues is not a solution and becomes harder as the taxman wises up. The benefits of being registered have improved greatly giving access to tax savings, health services and family control. For the majority of clients we find ways to help out and provide peace of mind.

Sam Orgill

ProACT Partnership

Tel + 357 26 819 424

info@proactpartnership.com

www.proactpartnership.com

Article Link: http://www.property-partnership.com/overseas-property-guides/overseas-property-guide.cfm?id=66

Please contact the author at sam.orgill@proactpartnership.com for more information.