Adoption of the “Faster” Directive: Towards a simplification of withholding tax refund procedures

The EU Directive 2025/20 adopted on December 10, 2024, known as the “Faster Directive”, which introduces a series of reforms designed to make procedures for the relief or refund of withholding tax levied on dividends and interest paid to non-resident investors more efficient and secure, will come into force on January 31, 2025. The new regulations are designed to facilitate cross-border investment while combating the risks of tax fraud and abuse, particularly in the field of financial investments.

A reform to improve efficiency and combat fraud

The main aim of the Faster Directive is to make procedures more efficient and accessible for non-resident investors receiving investment income. It also aims to eliminate existing obstacles to cross-border investment, and to make procedures for claiming relief or refunds of excess withholding taxes levied under international tax treaties more accessible and less time-consuming.

The Directive also aims to establish a harmonized and transparent system of withholding tax within the European Union.

Key measures of the Faster Directive

The main measures include :

• The introduction of an automated procedure for issuing a digital tax residence certificate (CRFN) to individuals and entities resident in their jurisdiction, in principle within 14 days of submission of the request;
• The creation of national registers in which financial intermediaries (particularly large institutions) will have to register in order to be certified. Within this framework, a European portal for certified financial intermediaries will be created.
• The obligation for financial intermediaries to communicate certain information to the tax authorities so that transactions can be traced.
• The introduction of a “deduction at source” system, whereby financial intermediaries apply the relevant tax rate at the time of payment of dividends or interest.
• The introduction of a “rapid repayment” system, authorizing certified financial intermediaries to request rapid repayment of excess withholding tax.

Exceptions and room for manoeuvre for member states

Although the directive introduces a harmonized procedure, it stipulates that States may retain the procedures currently in place in the following cases:

• Where they provide for full relief of the excess withholding tax deducted from dividends paid in respect of listed shares whose market capitalization ratio is below a threshold of 1.5%.
• When they make it possible to avoid excessive withholding tax on interest paid on listed bonds.

The Directive also provides for States to be able to exclude, in whole or in part, the application of the Directive’s provisions when they wish to carry out additional controls with a view to preventing tax fraud.

Member States have until December 31, 2028 to transpose the Directive into national law. However, the provisions will only apply from January^1, 2030, in accordance with Article 25 of the Directive. This implementation and entry-into-force deadline gives the tax authorities in each Member State the time they need to implement the expected tax reforms.

In practice, close coordination will be required between Member States to ensure uniform application of the Directive and the tax rules it imposes. Ultimately, the directive could significantly enhance the attractiveness of European financial markets.