On December 10, 2024, the Council of the European Union approved the FASTER directive (Faster and Safer Tax Relief of Excess Withholding Taxes), which aims to reform the withholding tax refund system. This initiative's main goals are to enhance transparency, reduce administrative burdens, simplify tax regulations for investors, and combat tax abuse. These new rules will create a more favorable environment for cross-border investments while protecting national budgets across EU member states. Key Changes Introduced by the Directive are following:


Introduction of a Unified Electronic Tax Residency Certificate (eTRC):

A standardized electronic tax residency certificate (eTRC) will be implemented across all EU member states to confirm the tax status of individuals and entities. This certificate will be used not only for withholding tax relief but also for other tax-related procedures.

  • The certificate will be automated and standardized, including references to double taxation agreements.
  • It will remain valid for one calendar or financial year.
  • Member states must issue the eTRC within 14 calendar days from the date of request unless additional verification of tax residence is required.


Implementation of Two Withholding Tax Procedures:

The directive introduces two mechanisms that will supplement the standard withholding tax refund process for dividends and, in some instances, interest from publicly traded bonds:

  • Relief-at-source – a reduced withholding tax rate is applied directly when paying dividends or interest.
  • Quick refund – excess withholding tax is refunded within 60 calendar days after the end of the refund request period.

EU States that already have a withholding tax relief system must implement at least one of these accelerated procedures if their market capitalization ratio has remained below 1.5% for four consecutive years.


Exemptions from Accelerated Procedures:

The directive defines certain transactions that will not be eligible for accelerated mechanisms:

  • Dividends paid on shares acquired within five days before the ex-dividend date.
  • Financial agreements are in effect on the ex-dividend date.
  • Tax relief requests where the applied reduction is not based on a double taxation agreement.
  • Dividend transactions exceeding €100,000 per registered owner at the time of payment (exceptions apply to UCITs, AIFs, AIFMs and other specified entities).

 

Double Taxation Issues:

Although the Treaties between the EU states are intended to address the problem of double taxation, the actual process of obtaining withholding tax relief differs significantly across countries. As a result, claiming a refund or exemption is often complex, time-consuming, and expensive. Additionally, these procedures can be susceptible to large-scale tax fraud.

The FASTER directive will streamline tax relief procedures, making them quicker, more efficient, and more secure.


New Obligations for Financial Intermediaries:

Banks, investment platforms, and other financial institutions, including intermediaries from third countries, must register in a national registry via the EU's centralized portal. Only certified intermediaries will be authorized to participate in the accelerated tax procedures. To facilitate the registration and certification process for financial intermediaries, member states will establish national registers, and a new European Certified Financial Intermediary Portal will be created. This centralized platform will provide access to national registers, simplifying the certification process and ensuring greater oversight and compliance across the EU.

  • Intermediaries must provide detailed reporting on payers, recipients, and anti-abuse measures.
  • They will be responsible for verifying the tax status of their clients.
  • Non-compliance may result in penalties and removal from the registry.
  • In cases of errors or failure to meet obligations, intermediaries may be held financially liable for tax losses.

Additionally, to streamline and enhance transparency in the reporting process, the Council has introduced both direct and indirect reporting options for certified financial intermediaries. Under direct reporting, intermediaries will submit the necessary data directly to the competent authority of the source member state. In the case of indirect reporting, information will be passed through each intermediary within the securities payment chain until it reaches the relevant authority.

Directive Implementation and Timeline

Following its publication in the Official Journal of the EU, member states must adapt their national laws by December 31, 2028, and the new rules will come into effect on January 1, 2030.

Adopting FASTER marks a significant step in modernizing the EU’s tax system. By introducing the electronic tax residency certificate, accelerated tax refund procedures, and stricter oversight of financial intermediaries, taxpayers will gain easier access to tax relief. At the same time, member states will strengthen their ability to combat tax fraud and abuse.