Expat expert: Potential offshore tax benefits

Q.WHAT ARE THE POTENTIAL TAX BENEFITS OF BANKING OFFSHORE?
A.An attraction of offshore banking could be the opportunity to receive gross interest since interest on offshore accounts is usually paid without the deduction of tax. This may be tax efficient for you, depending on the tax rules in the country where you are resident.

There is also the possibility that you will not have to pay any inheritance tax, capital gains tax or death duties if you hold a bank account in jurisdictions such as the Isle of Man and Jersey.

A probate may be required in certain circumstances.

However, if you live in an EU member state then you are likely to be affected by the European Savings Directive (ESD).

Q.WHAT IS THE EUROPEAN SAVINGS DIRECTIVE?
A.The European Savings Directive was agreed on 3 June 2003 and it came into force on 1 July 2005.

According to the directive, it aims to counter cross border tax evasion by collecting and exchanging information about foreign resident individuals receiving savings income outside their resident state.

The government believes that exchange of information between tax authorities is the best way to ensure that individuals pay the right amount of tax on cross-border income from savings.

Q.WILL MY INVESTMENTS BE AFFECTED BY THE ESD?
A.Any interest you receive on your offshore accounts can have tax withheld at source.

Alternatively, you may opt to continue to receive gross interest, but details about you and the interest you have received will be shared with the tax authority in the EU member state where you are resident.

Certain investments are not affected by the European Savings Directive, however. These include:

Insurance policies, life policies (such as with profit funds) and pensions.

Shares that you hold directly.

Pure equity funds are unlikely to be affected because their primary objective is to achieve capital growth.

You may also be excluded from the ESD in certain circumstances:

You are a resident in the UK but are not domiciled there and are prepared to follow certain restrictions, ie, you do not intend to transfer any of the offshore interest paid after 1 July 2005 from your offshore accounts back to the UK.

You are an unincorporated association or society such as a charity.

You are a company or partnership.

Your affairs are in a trust (provided the trust structure meets certain rules).

You are able to provide an exemption certificate from an EU tax authority.

For more details about HSBC Bank International’s offshore banking solutions visit www.offshore.hsbc.com or call +44 1534 616079