EU residents who have traditionally invested within the EU territories have been forced to look at alternative jurisdictions to invest their assets. The European Union introduced the ：EU Savings Tax Directive； (EUSTD), which came into force on 1^st July 2005, for effective taxation of cross-border interest payments. Non-resident investors from EU nations who hold personal deposit accounts in EU member state countries will have details of interest earned automatically returned to the individual・s home tax jurisdiction.

EU countries, such as Luxemburg, that elected not to automatically share such information will levy a withholding tax at source on the interest earned by EU residents at an initial rate of 15%; the tax rate will rise to 35% in 2011. Other jurisdictions, for example Switzerland, have signed a bilateral agreement with the EU on interest taxation in order to maintain its banking secrecy and will levy the same withholding tax rates similar to other EU countries.

So what does this mean for Hong Kong?

Tax friendly jurisdictions, in this case Hong Kong, are benefiting from the EUSTD as the directive will not apply to individuals resident outside the EU and has no impact in territories such as Asia. European investors are shifting their assets to the region・s banking centers to cash in on the Asian recovery, and of course, Hong Kong・s position as the gateway to China makes it a remarkably attractive proposition.

As an international financial centre of the region, Hong Kong banks and financial houses are well positioned to profit from the growth opportunities. Its well-established English common law systems and financial privacy laws provide an excellent alternative for European investors for both legitimate tax savings and solid asset protection.