What is FASTER?
The operation and administration of withholding tax (WHT) across European Union (EU) member states presents significant complexities for investors and financial intermediaries. Refund processes for non-resident investors by EU countries are often time-consuming and costly, potentially discouraging cross-border investment within the EU. To address this, the EU has mandated the Faster and Safer Tax Relief of Excess Withholding Taxes (FASTER) Directive. This initiative aims to simplify withholding tax relief procedures for dividends and interest payments across the EU, benefitting investors, enhancing the competitiveness of EU financial markets and improving security for national tax administrations.
Overview
The FASTER directive aims to streamline cross-border investments by:
- Introducing a digital tax residence certificate;
- Implementing optional relief-at-source and quick refund systems; and
- Establishing reporting requirements for certified financial intermediaries (CFI).
These measures are designed to reduce administrative burdens, enhance efficiency and improve transparency in WHT processes.
1. Digital tax residence certificate
The directive introduces an EU-wide electronic tax residence certificate (eTRC), which member states are required to issue to eligible applicants within 14 calendar days of a request. This approach eliminates the burden of obtaining multiple tax residency certificates for various EU jurisdictions. Instead, a single eTRC will suffice.
2. Certified financial intermediaries
Under the FASTER system, large EU financial intermediaries will be mandated to register as Certified Financial Intermediaries (CFIs), while smaller EU intermediaries and those based outside the EU will have the option to register voluntarily. CFIs will play a crucial role in the new withholding tax framework, assisting investors in accessing tax reductions or exemptions. Significantly, they will be responsible for due diligence and reporting to national tax authorities.
3. Fast-track procedures
To complement existing standard refund procedures for withholding taxes, the directive introduces two new fast-track procedures. Member states have the flexibility to implement either one or both of these systems. The first option — relief-at-source — allows for the immediate application of reduced tax rates or exemptions at the point of dividend or interest payment. Alternatively, the quick refund system ensures that any overpaid withholding tax is refunded within a 60-day period following the end of the request period.
Timeline
The EU adopted the FASTER directive on 10 December 2024, and member states are expected to formally incorporate the directive into national legislation by 31 December 2028. These national rules will apply to fiscal years beginning on or after 1 January 2030.
Key actions businesses can take today
1. Prepare for upcoming guidance
Stay alert for the EU’s forthcoming guidance notes accompanying the FASTER directive. Member states have a number of options in terms of how they will implement FASTER and this adds to the complexity. The guidance is expected to provide clarity on provisions and practical examples, helping both member states and CFIs in their preparation for the implementation of FASTER. Businesses should review these notes carefully to ensure full compliance and optimal implementation of the new procedures.
2. Upgrade systems and processes
CFIs must begin assessing and upgrading their systems and processes to effectively manage withholding tax relief and refunds as outlined by FASTER. This includes enhancing capabilities for mandatory account holder due diligence and reporting to tax authorities. Early preparation will ensure a smoother transition when the directive comes into effect.
3. Familiarise yourself with the new requirements
Investors should start acquainting themselves with the due diligence and documentation requirements under FASTER. Understanding these new processes early will enable investors to fully benefit from the regime once it’s introduced, potentially streamlining cross-border investment activities.
We’re here to help you
We understand that navigating the complexities of the FASTER directive can be challenging. Our experts are ready to assist you in interpreting the new requirements, assessing their impact on your business and developing a tailored implementation strategy. Whether you’re a CFI preparing for system upgrades or an investor seeking to understand the new requirements, we’re here to provide guidance every step of the way. Don’t hesitate to reach out to our dedicated team for personalised support.
