19/12/24

EU: New rules for withholding tax procedures adopted

As published on: grantthornton.nl, Thursday 19 December, 2024.

The Council of the EU officially adopted the FASTER Directive on 10 December 2024. This is after re-consulting with the European Parliament concerning the agreement of the Council of the EU on the compromise text, back in May 2024. This text outlines new rules for withholding tax procedures. It will be published in the EU's Official Journal shortly. But what is coming up?

What is the FASTER directive?
Currently, where cross-border investments are concerned, many EU Member States levy taxes on dividends (from equities and shares) and interests (on bonds) paid to foreign investors. At the same time, those investors pay income tax on the same income in their country of residence.

The FASTER directive seeks to simplify withholding tax procedures for dividends and interest payments on publicly traded instruments to non-resident investors within the EU. Its goals are to encourage cross-border investments, enhance European capital markets, and provide better protection against tax fraud and abuse.

Who is concerned and benefit from the directive?
Financial intermediaries registered as Certified Financial Intermediaries (“CFI”). An EU portal will be set up to facilitate registration in the EU Member States. Large EU financial intermediaries will be obliged to register, while smaller EU financial intermediaries and non-EU intermediaries will be allowed to register voluntarily.

The main positive effect will be for securities account holders and investors, who will more easily benefit from withholding tax reductions/exemptions through the CFI.

Common tax residence certificate
The directive will introduce a common EU digital tax residence certificate (eTRC) that tax-paying investors would be able to use to benefit from the fast-track procedures to obtain relief from withholding taxes.

EU Member States will provide an automated process to issue the eTRCs to a natural person or entity deemed resident in their jurisdiction for tax purposes. EU Member States must issue the eTRC within 14 calendar days.

The eTRC shall cover a period that does not exceed the calendar year or the fiscal year for which it is issued.

Fast-track procedures
The directive will allow EU Member States to have two fast-track procedures complementing the existing standard refund procedure for withholding taxes. This will make relief and refund processes faster and more closely harmonised across the EU.

EU Member States will have to use one or both of the following systems:

a “relief-at-source” procedure where the relevant tax rate is applied at the time of payment of dividends or interest, or
a “quick refund” system where the reimbursement of overpaid withholding tax is granted within a set deadline. The agreed deadline is 60 calendar days.
Entry into force
EU Member States need to transpose the directive into national legislation by 31 December 2028, and the national rules will apply from 1 January 2030.

We are ready to assist
As an investor, you should review your existing withholding tax refund or reduction claim procedure and ensure your documentation is up-to-date. It is important to engage with CFIs. Please do not hesitate to get in touch with your usual Grant Thornton contacts, or our dedicated subject matter experts for more guidance.

Want to learn more about the FASTER directive? Please find more information on our dedicated page regarding the FASTER directive.

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EU Withholding tax FASTER Directive