Tax agreements

The Republic of San Marino follows an independent tax policy and, as a third country to the European Union, is not subject to EU legislation in this area. One exception to this is the Agreement between the European Community and the Republic of San Marino, which established measures equivalent to those defined in Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments.

This agreement, signed in Brussels on December 7, 2004, committed San Marino to adopt measures similar to those outlined in Directive 2003/48 concerning interest payments made by Paying Agents residing in the Republic of San Marino to entities residing in an EU Member State. A similar understanding was also reached by the EU with other third countries, including Switzerland, Liechtenstein, Andorra, and Monaco.

The purpose of these agreements was to ensure a "fair competition" regime between EU countries and certain third countries, geographically and economically linked to them, which mirrored the regime introduced by Directive 2003/48/EC. Under this arrangement, EU residents receiving interest payments from financial entities in third countries that were signatories to the agreement could choose between:

• a full transparency regime through an automatic exchange of information regarding such payments carried out directly by tax administrations, or

• the application of an additional withholding tax on top of the domestic withholding tax, which would be remitted by the third-country tax administration to the EU country of residence of the payment recipient.

Depending on the recipient's choice, the EU tax administration would either receive a flow of information to support verification and control activities for tax purposes, or an "economic compensation" in the form of the higher withholding tax remitted by the third-country tax administration.

The December 7, 2004 agreement was substantially revised through an amending protocol, which took effect on January 1, 2016. This protocol introduced a stable form of automatic exchange of financial information between San Marino and EU member states based on the Global Standard set by the OECD. Under the new framework, San Marino committed to providing EU member states with information about financial accounts held by individuals residing in those states with San Marino financial entities. Similarly, EU member states committed to providing San Marino with information about financial accounts held by San Marino residents with financial entities in their jurisdictions.

The changes introduced by the Amending Protocol align with international commitments made by San Marino and the EU to promote greater tax cooperation through instruments such as the OECD Multilateral Administrative Assistance Convention (also known as the Jakarta Convention). San Marino and several EU countries are part of the "early adopters" group, which formally committed to automatically exchanging information under the OECD Common Reporting Standard in October 2014.

As a result of the amending protocol, effective January 1, 2016, San Marino ceased applying the withholding tax outlined in the December 7, 2004 agreement on interest income paid to EU residents.

Over the years, the Central Bank of San Marino has provided continuous technical support to the Government of San Marino, both during the negotiation of these agreements and in their implementation.

Amending Protocol to the Agreement between the European Community and the Republic of San Marino providing measures equivalent to those laid down in Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments.
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