Private Banking FAQ

In France, tax is due on world-wide income, whether from investments or earnings, when an individual is deemed to be tax resident. Non-residents are taxed only on French source income and assets. Tax residency is assumed if the individual has a home in France, if it is their principal abode, if it is the centre of their economic interests, or if their principal professional activities are performed there.

Establishing non-residence for a French tax resident usually amounts to demonstrating that residence has been established elsewhere, and that the normal tests for French residence are not fulfilled. Clearly this is not easy, and it can often happen that a French expatriate has dual tax-residence, at least for a period - Double Tax Treaties, where they exist, usually sort this out, but it is important for an expatriate French national (or a tax-resident for that matter) not to incur tax on foreign income in a country without a French Double Tax Treaty (ie most offshore jurisdictions).

As from July, 2005, France provides information about the returns on savings paid to citizens of other EU Member States to the citizen's home state, under the EU Savings Tax Directive.

There are gift and inheritance taxes in France which are not easily escaped, although within a family the rates are quite low. If a non-resident legatee has been a resident of France for six out of the previous ten years, the tax applies to worldwide assets transmitted, regardless of the residence status of the deceased. However, in 2007, new legislation (LOI 2007 – 1223 du 21 aout 2007, en faveur du travail, de l’emploi et du pouvoir d’achat), raised the Inheritance Tax threshold from EUR50,000 to EUR150,000 per parent for each child. For nephews and nieces the new threshold will only be EUR7,500, while for brothers and sisters the threshold rises from EUR5,000 to EIUR15,000.

Once a French citizen has established non-residence, no French income tax will be payable on foreign interest income, even if it is repatriated to France - but the annual wealth tax (levied on a sliding scale) will bite on any assets accumulating in France.

Switzerland

There are over 500 major banking institutions in Switzerland, and it is estimated that more than 35% of the worlds private wealth is centred there. It is a low tax rather than offshore jurisdiction as such, and has earned a reputation for neutrality and security, conservative financial policies, and stringent banking secrecy (with limited exceptions in line with its legislation on combatting money laundering activity). Banks and financial institutions are regulated by the Federal Banking Commission, which applies world standard equity, capital, and liquidity rules to them. In 2009 Switzerland committed to the OECD's code of practice on information exchange, which amounts to a minor dent in banking secrecy. However, an administrative assistance agreement with the US concluded in August 2010 amounted to a more significant chink in Switzerland's amoury. The agreement allows for the names and bank account details of 4,450 US clients of UBS suspected of having evaded US taxes over a number of years to be handed over to the US tax authority (although this was significantly less than the 52,000 names originally sought by the US).

There is no centralized taxation system in Switzerland, due to its federal nature, and because of this, some taxes are levied at a federal level, and some at a communal or cantonal level. Residence is assumed if an individual is in Swiss employment, owns a business in Switzerland, or spends more than 180 days in any one tax year there.

Residents are taxed on their world-wide income up to a maximum of 11.5% at a federal level, and approximately twice that at a cantonal level (although in December, 2007, the Swiss canton of Obwalden became the first canton to adopt a flat rate of tax for individual income taxpayers, following a cantonal referendum), and non-residents are liable for tax on income arising from permanent Swiss establishments and real estate. There is also a ‘fiscal deal’ available for High Net Worth Individuals who are considering making Switzerland their home, but are not intending to work there.

There is a double tax treaty in place between Switzerland and France whereby full withholding tax is deducted at source, but a partial or full refund can be claimed from the Swiss tax authorities. It is worth noting, however that in recent years Switzerland as a financial centre has moved away from smaller individual client accounts, to focus on providing more sophisticated services for larger professional clients.

As from July, 2005, Switzerland applies a withholding tax of 20% to the returns on savings paid to citizens of EU Member States, under the EU Savings Tax Directive. This rate is due to rise to 35% from July 1, 2011.
It will be seen that Switzerland is not a suitable place in which to deposit money if the goal is to obtain tax-free interest payments on behalf of a non-resident.

Monaco

Although private banking for rich Monagesque residents was the original basis of the Principality's banking sector, this has changed. Many factors have contributed to Monaco's rise as a banking centre in the last 10 or so years, including the presence of a secure legislative base (the Bank of France is responsible for regulatory oversight), the absence (until 2005) of withholding tax on interest payments, and a rush of Italians away from their ever-tighter domestic tax regime.

There are now some 70 banks and financial institutions in Monaco, with more than 300,000 accounts (remember that there are 5,000 Monagesque nationals, and another 25,000 foreign residents). Approximately 85% of the banks' customers are non-resident. Banking turnover is in excess of $1.5bn, and assets under management top $60bn.

Although there is no capital gains or income tax, (which means that residence or otherwise is not really an issue) French nationals who work in Monaco are liable to pay social contributions of around 40% on their salaries. Monaco has only one taxation treaty, with France, but this is not a double tax treaty in the accepted sense of the word, as it merely provides for income tax to be levied against French nationals who transfer their residence to Monaco.

Banking facilities in Monaco are well adapted to the needs of expatriates and offshore investors, with a wide range of depositary services on offer. Secrecy is adequate for individuals with no French connections, but somewhat compromised for French residents.

As from July, 2005, Monaco applies a withholding tax of 20% (increasing to 35% on July 1, 2011) to the returns on savings paid to citizens of EU Member States, under the EU Savings Tax Directive.

Liechtenstein

Liechtenstein has a substantial banking sector, regulated under the Law on Banks and Finance Companies of 1993. The currency is the Swiss franc (as the jurisdiction has a customs and monetary union with Switzerland), and there are no exchange controls.

Liechtenstein used to be known for particularly stringent banking secrecy, but after the events of 2000 the "know your customer" system became legally compulsory (from 1 October, 2000) for all banks that belong to the Lichtenstein Bankers' Association, and in 2009, after attacks from Germany, the OECD and the G20, Liechtenstein began to dilute banking secrecy and to enter Tax Information Exchange Agreements with key OECD members.

Residency is assumed if an individual maintains a residence with the intention of remaining on a more than temporary basis, or performs some kind of employment or activity for gain in Lichtenstein. For resident individuals, income tax is charged at up to 17%, with a net worth tax of around 0.9% (depending on the commune of residency), although there is no separate capital gains tax. Non-residents are taxed only on Lichtenstein sourced income. Only one double taxation treaty has been established, with Austria.

Withholding (Coupon) Tax is levied on any distribution of dividends or profit shares (including distributions in the form of shares). Generally, prior to 2005, there was no withholding tax on interest or royalty payments, but it does apply to interest from bonds, to interest from time deposits with domestic banks in excess of 12 months, and to interest on some commercial loans over SFr50,000 with a minimum term over 2 years.

In September 2008, the government unveiled plans to substantially reform Liechtenstein's tax regime.

With regard to the taxation of individuals, the government announced, the new tax system would continue to apply a combination of fixed property and income taxes.

It further explained that the property tax would be calculated by reconciling assets to a special type of income, thus more closely linking property and income tax. The initial goal is to standardize the taxation of income from assets; in the long term, this type of taxation will be integrated into an interest-adjusted income tax.

In May 2010, the government confirmed that the new Tax Act would continue to provide a combination of a tax on assets and a tax on income. Instead of the existing asset exemption limit and the household deduction, a new increased tax exemption from overall income will be granted.

According to the government, the existing progressive tax schedule will be replaced by a seven bracket schedule. Dividends and other income on capital such as interest, leases, and rents will no longer be taxed separately, but rather via the taxation of assets. Under the proposal, taxation of capital gains as well as the estate, inheritance and gift tax will be eliminated. The new tax law is scheduled for implementation in 2011.

Deposits can be made in all the main currencies and interest rates follow European norms.

As from July, 2005, Liechtenstein applies a withholding tax of 15% (increasing to 35% on Jult 31, 2011) to the returns on savings paid to citizens of EU Member States, under the EU Savings Tax Directive.

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