On the 1st. July 2005, the EU Savings Directive will come into effect, on the understanding that the Council of the European Union confirms by the 1st. January 2005 that all conditions for introducing the regulations have been met.

The purpose of the Directive is to tax the interest income of all private EU citizens on savings in other Member States in accordance with the tax legislation in the citizens country of residence. Gibraltar and a number of third countries have ratified the Directive, which means that Gibraltar will exchange information about interest income in the same way as the EU Member States. Three EU Member States have been granted exemptions from the requirement laid down in the Directive concerning the exchange of information about citizen's interest income from savings in other Member States.

These countries - Belgium, Luxembourg and Austria - have been granted the alternative possibility to collect tax at source in a transitional period set to run until 2011. The level of taxation will initially be 15 per cent, but rising in two stages to 35 per cent by July 2011.

The EU regulations on taxation at source will apply only to income in the form of interest. Such income comprises direct interest payments and accrued and capitalized interest - for example interest on bonds and instruments of debt as well as income from certain funds that invest in interest-bearing securities.

However, investments under Pension schemes and Capital Insurance are not subject to the withholding tax or to the requirements for the exchange of information. Furthermore, a number of bonds issued before 1st March 2001 are exempt until the end of 2010, and certain exceptions apply to funds that invest less than 40 per cent in interest-bearing securities. Interest payments to corporate entities and to certain Trusts do not come within the scope of the Directive since such payments generally are taxed within the normal corporation tax regimes in each Member State.

Wealth Planning - The Increasing Need

In line with the increase in the exchange of information across national borders within the EU over the coming years, well organized wealth planning will play an increasingly more important role. The implementation of the Directive will no doubt sharpen the focus of most individuals to seek ways of limiting tax on interest income, personal wealth and inheritance.

In brief, it is important for individuals to plan for their future through timely and targeted wealth planning. To achieve this they will need the professional advice and guidance of proven experienced professionals who are well acquainted with all matters appertaining to finance, investments and taxation.

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