European Savings Tax Directive (EUSTD)
The European Savings Tax Directive (EUSTD) operates in the Isle of Man, with the Island originally applying the retention/withholding tax option. The Directive applies to EU resident individuals on income earned on savings held in other EU countries. Although the Isle of Man is not part of the EU, it voluntarily agreed to adopt elements of the EUSTD but, along with some other countries, negotiated a variation of the Directive. Customers of financial institutions could opt for disclosure rather than have the withholding/retention tax applied. The Directive came into force on 1st July 2005 with an initial tax deduction levied at 15% (no tax was deducted on interest earned before 1 july 2005). Since 1st July 2008, tax deduction has stood at the rate of 20%.
From 1st July 2011, the Isle of Man will move to automatic exchange of information within the EU in its application of the Directive. This puts the Island at the forefront of international tax cooperation and transparency, allowing for free exchanges between countries.
On exchange of information, interest is paid gross but the customer's name, address, account number and the gross amount of interest paid is included in a report sent to the Isle of Man tax authorities. They in turn forward the report to the tax authority of the country of residence of the customer.