Estonia T2S: Tax impact on service offering
Effective
2 December 2019
Clearstream Banking S.A.1 (CBL) will deposit and settle Estonian securities that are T2S eligible with Clearstream Banking AG2 (CBF) in order to enable future OneClearstream service upgrades (the “Migration Date”). As indicated in Announcement C19022, CBF will activate direct access to the Baltics (Nasdaq CSD) to enable eligibility of Nasdaq CSD issued securities for settlement in T2S.
Clearstream Banking3 will access Nasdaq CSD for settlement in T2S via CBF as follows:
Country | CSD | Type of link | Eligible securities |
Baltics (Estonia, Latvia, Lithuania) | Nasdaq CSD | Direct link to Clearstream Banking AG, Frankfurt for holding Nasdaq CSD eligible securities. | Commercial papers (money market); Government bonds; Municipal bonds; Corporate bonds; Equities; Nasdaq-eligible investment funds. |
This is part of our ongoing efforts to harmonise our services allowing customers to benefit from advantages across multiple areas of our business.
Important improvements to CBL and CBF tax services
As a result of our ongoing collaboration with Nasdaq CSD and in order to satisfy our customer requests to offer a complete tax service, we are pleased to inform customers that we have obtained the agreement to offer extended quick refund, as well as standard refund services to all beneficiaries eligible for reduced tax rate.
Applicable tax rates
The following tax rates apply on Estonian dividend distributions.
- 7%, if the dividend is distributed by an Estonian company subject to the lower corporate income tax rate of 14%; or
- 0% if the dividend is paid from irregular profit distribution that is subject to 20% income tax.
Beneficial owners eligible for reduced tax rates
After submission of the required information within the prescribed deadlines, the following beneficial owners are eligible to apply for reduced tax rates through Clearstream Banking:
- At source:
- 0%: if the final beneficial owner is a legal entity and is not resident of Estonia;
- 0%: if the beneficial owner is a legal entity resident of Estonia and until the recipient makes a distribution of profits.
- Via Quick refund
- Tax treaty rate: if the final beneficial owner is an individual and resident of a country that has signed a Double Taxation Treaty (“DTT”) with Estonia granting a treaty rate lower than 7%.
- 0%: if the final beneficial owner is a legal entity (as described above) but his holding was not declared by the prescribed deadlines before payment date to obtain tax exemption at source.
- Via Standard refund
- Tax treaty rate: if the final beneficial owner, being an individual and resident of a country that has signed a Double Taxation Treaty with Estonia granting a treaty rate lower than 7% (“DTT residents”), did not reclaim the tax withheld at source via the quick refund process.
- Full refund: if the final beneficial owner, being a legal entity not resident of Estonia, did not declared his holdings to be tax exempt at source or via the quick refund.
Impact on customers
Relief at source (RAS)
The current RAS service offered to final beneficiaries that are legal entities and described in announcement A19079 remains applicable based on following certification:
One-Time Certificate for Estonian Equities
The One-Time Certificate for Estonian dividends has been amended to reflect the possibility to apply for quick refund. Customers applying for RAS must tick-off one of the first 3 boxes, that are:
- BOX 1 – Standing instruction: Exclusively for one single beneficial owner (which may be the customer or his underlying client) being a legal entity and eligible for tax exemption. By ticking the first box, reduced tax rate is applied by default at source on all further taxable dividend payments based on the total holding visible in the customer account at the end of Record Date of each impacted dividend event.
Or - BOX 2 – Standing instruction: On behalf of several beneficial owners (excluding the customer), being exclusively legal entities. By ticking the first box, reduced tax rate is applied by default at source on all further taxable dividend payments based on the total holding visible in the customer account at the end of Record Date of each impacted dividend event.
Or - BOX 3 – Instruction per payment: On behalf of several beneficial owners that are legal entities eligible for tax exemption but also on behalf of beneficial owners that are individuals or are not willing to declare their holdings. In addition to the One-Time Certificate, the customer is required to submit, before each income payment, a Breakdown of Holdings as explained below.
We remind you that this One-Time Certificate must be submitted by all customers, regardless the residency and status of the beneficial owners, before the first impacted dividend payment date. One-Time Certificates that have more than one box ticked-off are not valid and will be rejected.
Breakdown of Holdings
If Box 3 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, before each impacted income event via SWIFT, Xact Web Portal or CreationOnline message, and must indicate:
- ISIN;
- Corporate Action ID;
- CBL customer account number;
- Total number of shares or nominal value of securities held on the account;
- Number of shares or nominal value of securities held by legal persons and for which exemption of Estonian withholding tax is required.
These declared positions must be accurate on the relevant record date indicated in Clearstream Banking’s tax notification at 19:00 CET, meaning that no further transactions are allowed after the submission of the Breakdown of Holdings. If there is a discrepancy between the declared positions and the customer’s total holding visible in Clearstream Banking’s books, the application for tax exemption will be rejected and, consequently, the maximum tax rate of 7% will be applied.
Furthermore, if Box 3 of the One-Time Certificate is ticked and Clearstream Banking receives no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate of 7% will be applied.
Important Note: To obtain tax exemption at source, the identity of final beneficial owners being legal entities is not required. However, Clearstream Banking may be requested by the Estonian Authorities to disclose the identity of the beneficial owners and their respective holdings. In this case, customers must provide Clearstream Banking, promptly upon request at any time, with such information and any other tax documentation that may be requested from time to time.
Deadline for RAS
To benefit from RAS from Estonian taxable dividends, customers must ensure that Clearstream Banking receives the above-described instructions and documents by below applicable deadlines:
- If the record date (RD) is payment date (PD) – 1 business day: no later than RD at 10:00 CET.
- If the RD is at least PD-2 business days: no later than PD-2 business at 10:00 CET.
Extended quick refund (QR)
Post-migration, the QR service currently available to legal entities will be offered also to individual beneficiaries that are DTT residents. Furthermore, the possibility to apply for QR will be extended to nine months after the applicable PD.
The certification and instruction requirements are the following:
One-Time Certificate for Estonian Equities
If not already provided, the One-Time Certificate for Estonian dividendsmustbe submitted by all customers before their first application for QR. Box 4 must be ticked-off. We remind customers that One-Time Certificates that have more than one box ticked-off are not valid and will be rejected.
Breakdown of Holdings
If Box 4 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, for each QR application via SWIFT, Xact Web Portal or CreationOnline message, and must indicate:
- ISIN;
- Corporate Action ID;
- CBL customer account number;
- Total number of shares or nominal value of securities held on the account on payment date;
- For beneficial owners that are legal entities:
- The total holdings for which QR is required;
- For individual beneficial owners DTT residents:
- The total holdings for which QR is required;
- For each eligible individual beneficial owner applying for QR:
- Full name,
- Personal identification number (or date of birth),
- Full fiscal address,
- Number of shares,
- Applicable treaty tax rate.
- The total position of remaining undisclosed holders.
For DTT individuals only:
Certificate of Residence
Each eligible individual beneficial owner being DTT resident must submit a Certificate of Residence issued by his local tax authorities and valid for the income event for which a QR is requested. The Certificate of Residence remains valid 12 months from the date when it was signed by the tax authorities.
Declaration of Beneficial Ownership
Each eligible individual beneficial owner being DTT resident must submit a Declaration of Beneficial Ownership before his first application for QR, confirming that he is the owner of the income for which tax refund is claimed and that he has no fiscal residency in Estonia. This document remains valid until revoked and must be completed and signed by the beneficial owner or by his representative, in which case original Power of Attorney from the beneficial owner to the representative must be also submitted.
Deadline for QR
To reclaim tax over withheld at source, customers must ensure that Clearstream Banking receives the above-described instructions and documents at the latest 9 months after the PD for which QR is required.
When are refunds received
The estimated time for receiving a refund is up to 30 calendar days from the date on which Clearstream Banking receives the certified documents for quick refund, although this can vary depending on the issuer and when the application is filed.
Standard refund (SR)
A standard reclaim of withholding tax is available if RAS or QR have not been obtained by beneficial owners eligible for the reduced tax rate. The customer can reclaim the withholding tax on behalf of the beneficial owner through Clearstream Banking by submitting the appropriate documentation, as described below:
Declaration of Beneficial Ownership
Each beneficial owner being an individual DTT resident or a legal entity must submit a Declaration of Beneficial Ownership before its first application for SR, confirming that it is the owner of the income for which tax refund is claimed and that it has no fiscal residency in Estonia. This document remains valid until revoked and must be completed and signed by the beneficial owner or by his representative, in which case original Power of Attorney from the beneficial owner to the representative must be also submitted.
Letter of Request to Clearstream Banking for Tax Refund of Estonian withholding tax
This authorises Clearstream Banking to reclaim withholding tax from the Luxembourg Tax Authorities on the customer's behalf.
For DTT individuals only:
Certificate of Residence
Each eligible individual beneficial owner being DTT resident must submit a Certificate of Residence issued by his local tax authorities and valid for the income event for which SR is requested. The Certificate of Residence remains valid 12 months from the date when it was signed by the tax authorities.
Deadline for SR
The statutory deadline for reclaiming withholding tax using the standard refund procedure is three years following the dividend payment date that was subject to tax.
The deadline by which Clearstream Banking must receive the documentation for a SR application is, at the latest, three months before the statutory deadline. All standard refund applications received after this deadline will be processed by Clearstream Banking on a “best-efforts” basis. However, in such cases, Clearstream Banking will apply an extra charge and accepts no responsibility for forms that have not reached the Estonian Tax Authorities by the date considered being the statute of limitations deadline.
For tax reclaims, you are reminded that Clearstream Banking accepts no responsibility for their acceptance or rejection by the tax authorities of the respective country. It is the customer’s responsibility to determine any entitlement to a refund, to complete the forms required correctly and to calculate the amount due.
When are refunds received
The estimated time for receiving a refund is 60 calendar days from the date on which Clearstream Banking receives the certified documents for standard refund, although this can vary depending on when the application is filed, and the complexity of the information supplied in the reclaim form.
Further information
For further information, please contact the Clearstream Banking Tax Help Desk or Clearstream Banking Client Services or your Relationship Officer.
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1. Clearstream Banking S.A. (CBL) registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248.
2. Clearstream Banking AG (CBF), registered office at Mergenthalerallee 61, 65760 Eschborn, Germany, registered with the Commercial Register of the District Court in Frankfurt am Main, Germany, under number HRB 7500.
3. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.