Withholding tax rate jumps in July

FROM July 1 the withholding tax rate applied by offshore banks under the EU savings tax directive (STD) will jump from 20 per cent to 35 per cent.

The Isle of Man and Guernsey will scrap the withholding tax altogether and instead start automatically to exchange information on bank accounts held by EU residents.

This means the French tax authorities will be informed about your account regardless of whether you declare it yourself or not.

Neither of the above should matter, as French tax residents should be declaring their offshore bank accounts and interest earnings in France and paying tax here.

Paying the withholding tax does not exempt you from declaring the income in France and paying tax and social charges on it. If the offshore rate is higher than the French rate, no reimbursement is given for the difference.

Here in France, interest earned from local bank accounts is subject to a fixed withholding tax of 19 per cent (2011 rate) or at your marginal rate of tax, and you can opt for interest from offshore centres to be taxed at the same rate.
Interest is also subject to 12.1 per cent social charges, over and above the tax.

The government does have the option of taxing offshore assets at a higher rate than EU ones, so, while this is not done at present, there is a risk that tax on offshore income will be increased.

Moving your capital into an assurance vie could result in you paying less tax on your income than either the STD or French withholding tax rate. As mentioned above, this arrangement also offers a combination of tax benefits that are better than alternative investments.

To date, the various taxation changes imposed or proposed have had limited impact on the assurance vie.

You should however always take personalised advice before implementing any tax planning strategies to make sure they are suitable for your specific circumstances and objectives.