EU withholding tax

As is well known, from 1 July 2005 the current wording of the EU Guideline on the Taxation of Interest Income obliges all EU member states ? including the new member states in Eastern Europe ? or specifically the banks domiciled in these states ? to take part in the so-called exchange of information on the cross-border interest income of investors resident in a EU member state.

In this conjunction, a special arrangement was agreed with Austria, Belgium and Luxembourg. Under this arrangement, these countries have undertaken to retain a ?withholding tax? on interest income instead of participating in the exchange of information. This obligation will also be extended to banks in the Principality of Liechtenstein and in Switzerland on the basis of bilateral agreements. The same applies to the other European offshore jurisdictions (Monaco, Andorra, and San Marino).

The tax applies to the cross-border interest income of natural persons whose tax domicile is located in an EU member state and who have assets invested in one of the three specified EU member states or in the Principality of Liechtenstein or in Switzerland. In this conjunction, nationality is irrelevant.

Up to 2007 the tax rate will be 15%; after 2008, 20%; and after 2011, 35%.

In its current wording the EU guideline does not apply to legal entities. This would mean that in particular the Liechtenstein foundation as well as other companies will not be affected by the withholding tax.