Whether you live in Luxembourg, France, Germany or Belgium, you are required to comply with certain tax obligations. These include the obligation to declare the bank accounts that you hold abroad.
Why do I need to declare bank accounts held abroad?
It is not illegal to hold a bank account abroad. However, failing to notify the tax authorities in your country of residence may result in a tax inspection and adjustment.
Since 2014 and as part of the fight against tax evasion, a growing number of countries have been affected by the automatic exchange of information. The banks and financial institutions of signatory countries have pledged to submit the financial information (identity, account, balance and income, etc.) pertaining to their non-resident clients to their respective countries of residence.
How can I ensure I am compliant with the law?
- I live in the Grand Duchy of Luxembourg
Luxembourg residents are required to declare the interest connected to bank accounts held abroad to the Luxembourg tax authorities. Such interest is taxable in Luxembourg as “Net investment income” unless you opt for 20% withholding tax.
If you opt to pay withholding tax:
- you must complete and submit form 931 to the Bureau de la retenue d’impôt sur les intérêts no later than 31 March of the year following the allocation of income;
- you must also calculate the 20% withholding tax and pay it to the Ettelbruck tax office.
As a general rule, taxpayers who do not declare interest accrued on their foreign accounts in their country of residence risk facing double taxation.
It is not necessary to declare interest subject to withholding tax in the tax return. However, interest that is not subject to withholding tax must be declared in the Income Tax Return on page 9 of form 100, on the basis of the certificate issued by the foreign bank. It is subject to the ordinary rates of income tax (varying between 0% and 42%), to employment fund contributions and to long-term care insurance contributions.
As a general rule, taxpayers who do not declare interest accrued on their foreign accounts in their country of residence risk facing double taxation. How does this work in practice? The principle is quite simple; a withholding tax is deducted at the time of payment of income, to which a tax from the local authorities is later added once the income has been reported through the automatic exchange of information. Non-resident taxpayers who request to be treated as residents for tax purposes must also declare their capital income from Luxembourg and abroad.
- I live in Belgium
Belgian residents (including spouses and children) must also declare any accounts held with banking, foreign exchange, credit or savings institutions established abroad. The declaration must be made to the central contact point at the National Bank of Belgium (NBB) when the tax return is submitted at the latest.
To declare your foreign accounts, you must:
- Either complete the form directly online on the NBB website (you will need your electronic identity card, your PIN and a card reader)
- Or download the paper version of the foreign account notification form , complete it and send it to the NBB with a photocopy of the front and back of your Belgian ID card or residence permit.
- If you would prefer for your accountant to handle this matter for you, they must have power of attorney on your behalf and send the form by post with a photocopy of their identity document and yours.
Please remember to complete box XIV “Individual accounts and life insurance abroad” of the tax return. Note that if you are a joint account holder of a foreign account, both account holders must declare it and complete separate forms.
> Belgian residents who do not declare their foreign accounts may face an administrative fine and sanctions. If the income credited to these accounts is not declared either, the tax authorities may impose automatic taxation and apply an additional tax.
- I live in France
If you or a member of your household is the holder of a foreign account or holder of a power of attorney in respect of a foreign account, you are also required to declare it. This information must be declared when submitting the tax return on the impots.gouv.fr website (if you submit your tax returns online) or by downloading form 3916.
- complete form 3916 “Declaration by a resident of an account held outside France”;
- date and sign the document, then attach it to tax return no. 2042;
- tick box 8UU of tax return no. 2042.
Be sure to complete one form per account held abroad. However, if the same account is held by two spouses, it only needs to be declared once. If you submit paper tax returns, you may also mention all account identification details on a separate sheet of paper.
> French residents who do not comply with their tax obligations may face a fine of EUR1,500 per undeclared account and EUR10,000 if the account is located in a country that has not concluded a convention on administrative assistance with France, as well as an additional tax assessment surcharge of 80%.
If you live in Luxembourg, your Paypal account is not considered a foreign account. The rules are different if you live in Belgium, Germany or France.
- I live in Germany
Just as in neighbouring countries, German residents must also declare any accounts held with a foreign institution. They must be included in the tax return on line 99 of the main form (code 1). Interest accrued abroad must also be declared. Failure to do so will give rise to a fine proportionate to the amount undisclosed.
Am I required to declare Paypal accounts?
If you live in Luxembourg, your Paypal account is not considered a foreign account given that it is open in the Grand Duchy (location of the company’s registered office). However, the rules are different if you live in Belgium, Germany or France.
In Belgium, there is no need to declare Paypal accounts unless they are linked to a business activity or if the sums of money “remain in the accounts beyond what is strictly necessary from a technical perspective to make transactions.” In both cases, they must be declared in the foreign account notification form and the “account number” fields must be completed with the email address provided to Paypal at the time of the transactions.
Similarly, in France, there is no obligation to declare accounts used to pay for purchases or to receive payment for online goods if:
- the purchase and sale amounts do not exceed EUR10,000 per year for all accounts combined;
- the account is linked to an account open in France.
If these two rules are not adhered to, you must complete a 3916 form for your Paypal account(s).