EU changes retention rules to attract investment

The European Union (EU) is preparing to change the withholding tax system to increase investment and improve the capital market.

The EU Commission has announced its proposal for a regulation, which includes new rules that it has prepared to make tax withholding procedures more effective and secure.

Accordingly, a joint certificate of EU digital tax offices will be developed. With this certificate, tax reduction transactions at the source will be faster and more efficient.

Individuals with investment portfolios in multiple EU countries will only use one digital tax residence certificate to claim multiple returns within the same calendar year.

WILL PREFER ONE OF THE TWO SYSTEMS

Withholding tax procedures, which differ between EU countries, will be standardized. Member countries will choose between two withholding tax systems.

In the “source reduction” procedure, the tax rate applied during the payment of dividends or interest will be subject to the rules set forth in the direct double taxation agreement. In this framework, the corresponding withholding tax rate will be deducted as soon as dividends are paid to the shares.

Under the “quick repayment” procedure, which is the other option, the first payment will be made taking into account the withholding tax rate in the member country where the dividend or interest is paid. Taxes paid in excess will be collected within 50 days.

The new withholding tax system will promote fair taxation, strengthen the fight against tax evasion and support investment in EU countries.

Currently, withholding tax procedures in EU countries differ significantly. Redemption hold procedures often deter investors as they are a lengthy and expensive process.

The new rules are expected to enter into force in early 2027, after approval by member states. (AA)