Adrian Kemp, Financial Consultant, Abacus Financial Services Group

With the introduction of the EU Savings Directive drawing closer (currently scheduled for 1st July 2005) questions of its affect on the offshore finance industry are becoming more pertinent.

From an offshore perspective, investors resident in the EU but with savings in the UK Crown Dependencies such as Jersey, will have the choice of having paying agents apply automatic exchange of information or adopt the withholding tax option, known as ‘Retention tax’.

Retention tax will start at 15% and rise to 35% by 2011. IFA’s will need to inform investors of the two options and possible outcomes e.g. disclosure of information can result in tax deferral advantages. Those that choose disclosure have nothing to fear and there will be no change.

It should be noted that the directive only applies to savings income including bank deposits and interest from certain bonds and investment funds. Income arising from dividends from equities, life assurance products and pensions will not be affected. Many institutions are developing new products for clients or improving old ones, so they fall outside the scope of withholding tax. It is also the case that the Directive will provide an opportunity for IFAs to improve services and update correspondence with clients. Of course this involves cost and we may see smaller less efficient institutions unable to provide quality services to attract future offshore investors.

The offshore finance industry has historically adapted to changes in the market and the directive is by no means an end to tax efficiency. As in the past we can continue to expect these industries to ensure they maintain their advantage by augmenting their existing product portfolios. Individuals with any doubts or questions should always consult an IFA who can advise them on the best way to legitimately mitigate their tax.

Abacus
Tel: +44 (0)1534 602000
website: www.abacus.com.

Alex de Wit, Offshore2Online

The unthinkable has happened. The members of the European Union (EU) have set aside their numerous cultural, political and historical differences and finally all agreed on something. Taxation.

The European Savings Directive (ESD) will, from July this year, require EU residents to pay 15% tax (rising to 35% by 2011) on EU-based bank interest and investment income. It’s part of a set of measures seeking to eliminate competition between Member States, with the long-held argument being that a single (common) market will increase purchasing power and provide better value for its residents. It also doesn't hurt that the Member States will be getting a mountain of cash in additional revenue as well.

Should investors worry about the future of tax-efficient offshore investing? We think not, for whilst the choice of vehicles might be narrowing in some quarters, the Directive expressly excludes insurance and pension products.

There’s good reason for this exclusion. Governments around the world are finding it harder to cope with longer life expectancy, with an increasing percentage of national wealth now being needed to support those in retirement. Some countries will not be able to provide a state pension at all in the future and those that do will be providing less in real terms. As such, it is both sensible and necessary for governments to continue to make personal savings plans and pensions as attractive as possible, and thereby reduce the burden on the State.

From an information and accessibility perspective, things have never looked so good. Following the huge success of online banking, a large and rapidly expanding number of investors are now using the internet to compare products, qualify recommendations and receive assistance. With instant access to fund performance, commentaries, valuations and the latest special offers and bonuses; they are now better informed and getting better value than ever before.

In our view, offshore investors have every reason to look forward to the future.

Offshore2online (HK) Limited
Tel: +852 2893 3200
Fax: +852 2572 8900
E-mail: info@offshore2online.com
Website: www.offshore2online.com

Tim Searle, GlobalEye

With the advent of the EU Savings Directive and talk of expats being taxed worldwide, the future platform for offshore tax efficient investing looks to be diminishing. With the fiscal authorities of many highly taxed jurisdictions like the US and the EU constantly attacking offshore centres to disband confidentiality, the global investor is going to ultimately suffer. Admittedly, the need to prevent money laundering, drug and terrorist activities remains paramount but the offshore investor who uses such jurisdictions to maximise their bona fide financial planning while overseas will fall foul too. And if this is the case, then the offshore financial planner could become a dieing breed.

For example, one British politician has said he fears the UK's Labour government was planning to introduce a US-style citizenship tax regime. This would cost many of the estimated 100,000 British citizens in the UAE tens of thousands of dirhams a year. US citizens living abroad have to file annual US income tax returns, so Americans living in the UAE do not benefit from the country's tax-free regime.

British citizens in the UAE do not have to pay taxes to their home government, as long as they remain out of the United Kingdom long enough to be classed as non-resident.

If the changes do come into effect, British expatriates would have to pay up to 40 per cent of their UAE income to their home country.

Here is what one UK opposition politician said during a recent visit to the Gulf: “One thing the government is looking at is the residence and domicile rules. The fear is that they will make changes to taxation to a worldwide citizenship system, I do think there is a chance this could happen. The Labour government is scratching around to increase revenue and they would see this as a fairly painless way of doing just that.

www.globaleyegroup.com