Updates on the FASTER Directive

The Faster and Safer Tax Excess Relief (FASTER) Directive represents a major shift in the European Union's approach to withholding tax relief. Formally adopted by ECOFIN on 10 December 2024 and published in the Official Journal of the European Union on 10 January 2025, the Directive aims to streamline and secure the relief of excess withholding tax across the European Union. European Member States have until 31 December 2028 to transpose the Directive into national legislation, with the new rules applying from 1 January 2030. 

By addressing long-standing inefficiencies in cross-border withholding tax procedures, the FASTER Directive introduces standardised relief at source mechanisms, digital tax residency certificates, and new roles and responsibilities for financial institutions. As suggested by its name, the directive’s purpose is to provide a faster and safer environment for all stakeholders: the investors of course but also the financial intermediaries and the tax authorities. These changes are set to reduce administrative burdens, minimise fraud risks, and enhance transparency in withholding tax collection for both investors and financial institutions.

Relief at source and quick refund 

The primary objective of the directive is to streamline the relief of excess withholding tax on dividends (and optionally interest) from publicly traded instruments issued by EU-based entities through two fast-track mechanisms: relief at source and quick refund.  

To achieve that objective, Member States with sufficiently large capital markets will need to implement a relief-at-source system. This system enables financial institutions within the custody / payment chain to register as Certified Financial Intermediaries (CFIs) and apply the correct withholding tax rate at the time of income payment, taking into account investor’s status, tax residency, and relevant double tax treaties or domestic laws. 

Alternatively, Member States may introduce a quick refund system. In this case, CFIs must submit refund requests no later than the second month after the dividend or interest payment date, and tax authorities must complete the refund within 60 days. 

Certified financial intermediaries and their obligations  

CFIs are at the heart of the new withholding tax system, tasked with ensuring compliance, transparency, and efficiency in cross-border investment taxation. The directive outlines several obligations that CFIs must satisfy to maintain their status and avoid penalties.  

Among these obligations, CFIs must conduct rigorous due diligence on investors before applying relief at source and/or processing quick refund applications. This involves obtaining investor self-declarations and electronic tax residence certificates (e-TRCs), verifying their validity against Know Your Customer (KYC) and Anti-Money Laundering (AML) records, and determining the investor’s eligibility for reduced withholding tax rates. In the event of inconsistencies (for example, where the investor self-declaration indicates residence in country A while the AML/KYC documentation indicates residence in country B), CFIs must resolve them by contacting the investor and obtaining any additional documentation or evidence needed to clarify the situation.

Furthermore, CFIs are responsible for standardised tax reporting to the national authorities of each investment country, ensuring that tax administrations receive consistent, structured information on income payments, beneficial owners, and withholding tax rates applied. This reporting is expected to follow an XML-based format, currently under discussion at the European Commission, and must be submitted no later than the second month following the month of the dividend or interest payment date. The reporting can be carried out directly, where CFIs submit the data directly to the relevant tax authority, or indirectly, where the data is transmitted via another financial intermediary part of the custody/payment chain, such as the sub-custodian bank, which then submits it to the tax authority. The use of SWIFT is also being considered to facilitate integration with existing banking systems, although no definitive conclusion has yet been reached. 

Non-compliance with these obligations can lead to significant penalties. In addition, CFIs may be held liable for the payment of any under withheld tax, reinforcing the importance of accurate due diligence, reporting, and adherence to the procedures outlined under the FASTER Directive.

Mandatory registration for systemic financial institutions  

The European Commission aims to achieve widespread application of the FASTER Directive across the EU. To this end, certain financial institutions participating in payment / custody chains are required to register as CFIs, apply the relief at source or quick refund procedures, and comply with FASTER reporting requirements. This obligation applies to: 

• Global Systemically Important Institutions (G-SIIs), 
• Other Systemically Important Institutions (O-SIIs), 
• Financial Institutions (FIs) that, in the Member State where they are established, rank among the three largest in terms of total asset value, 
• FIs whose total assets, either on a solo basis or on a consolidated basis amount to EUR 30 billion or more, and 
• Central Securities Depositories (CSDs).

The European Commission currently takes the view that all EU-based legal entities belonging to G-SII groups must register as CFIs. This obligation extends to both the EU and non-EU branches of such groups. For example, a US branch of an EU-based bank affiliated with a G-SII group would be subject to mandatory registration under the FASTER Directive, since it forms part of the same legal entity as its EU parent (provided however that it is involved in the dividend payment chain of a listed company resident in an EU Member State).  

With respect to O-SIIs: 

• Similarly to G-SIIs, if an O-SII is the EU-based parent of a banking group, all its EU-based legal entities must register. This requirement also extends to their EU and non-EU branches. 
• For O-SIIs that are part of a group with a non-EU parent, the O-SII itself must register, along with its EU subsidiaries and its EU and non-EU branches. Other entities within the group are not automatically required to register. 

In addition to mandatory registration, the directive allows other financial institutions that are not required to register to opt in voluntarily as CFIs. Voluntary registration enables these institutions to benefit from the simplified procedures for withholding tax relief at source and quick refund processing under the FASTER regime, providing they comply with all CFI obligations. This option can be particularly attractive for non-EU financial institutions that participate in custody / payment chains for EU-sourced dividends and interest payments, as it allows them to streamline compliance while facilitating efficient tax treatment for their clients.  

According to the European Commission, financial institutions should have three ways to organise registration and the compliance workload that comes with it. In a centralised model, a single group entity, typically the headquarters, registers as a CFI and assumes responsibility for fulfilling all obligations on behalf of the entire group. In a decentralised model, each individual entity or branch registers separately and manages its own compliance obligations independently. The mixed model combines elements of both approaches: certain obligations are handled centrally by a group entity, while other obligations are managed individually by local entities or branches. 

The FASTER Directive imposes significant obligations on CFIs, but in return, it provides them with a clearly defined and more structured role in the cross-border tax relief process. This allows CFIs to operate within a standardised EU framework, avoiding the complexity of navigating multiple, often inconsistent, national procedures. To ensure full compliance with the new requirements, CFIs will need to make investments in technology upgrades, implement comprehensive compliance trainings for their staff, and enhance their due diligence procedures, particularly around investor verification and reporting obligations. These measures are essential for CFIs to efficiently manage their responsibilities while enabling their customers to benefit from the fast-track relief at source and quick refund mechanisms offered under the directive.

Penalties for non-compliance 

Failure to comply with these obligations can result in significant consequences. If a CFI is found to have facilitated inappropriate tax relief due to inadequate due diligence or improper reporting, it risks losing its CFI certification, which would prevent it from processing withholding tax relief at source or quick refunds​. Additionally, the sanction regime will follow the domestic laws of the source Member State, meaning penalties could include dissuasive monetary fines or further legal action. To enforce these tasks, tax authorities have the right to audit CFIs and demand supporting documentation for the relief claims requests they process. 

Various options for the Member States 

Member States have several opt-in and opt-out options when implementing the FASTER Directive, allowing them to tailor the framework to their national tax policies while maintaining a standardised EU-wide approach.  

They can choose to adopt the common relief-at-source system, their own standardised relief-at-source system and/or, or a quick refund system.  

Additionally, Member States may impose a €100,000 threshold for certain claims, ensuring that only smaller transactions benefit from expedited procedures. 

Another key flexibility is the ability to extend the directive’s scope to include interest payments on publicly traded bonds or limit its application solely to dividend income from listed equities.  

Furthermore, domestic legislation can allow tax authorities to exclude certain beneficial owners (BOs) from relief provisions, particularly in cases where anti-abuse measures or local tax treaty interpretations apply.

Implementing this directive presents a significant challenge, as the Commission must balance the goal of a standardised and compatible reclaim system across 27 Member States while ensuring flexibility and a smooth transition to the new framework.  

Working groups have been formed to assess this and other technical challenges, ensuring the most efficient and secure reporting framework is adopted. Bridging the technological gap necessary to achieve this balance will require substantial efforts and adaptations from both CFIs and Member States. 

Implementation acts and working groups 

The preparation of the seven implementations acts of the directive remains fluid, with discussions still shaping its final structure.  

While working groups are working fast and refining technical and operational aspects, shifting priorities and ongoing debates mean that key details are still evolving. Different stakeholders — Member States, financial institutions, regulatory bodies and key market players — are weighing in, leading to adjustments that could impact how the directive is ultimately applied.  

Given this uncertainty and ongoing back-and-forth, CFIs must stay vigilant, as what has been outlined so far is not final, and further changes are expected before full implementation. 

The Commission is advancing rapidly, and current expectation set the release of implementing acts of the Directive for 2025/2026.  

For now, the below topics have been discussed: 

This directive represents a significant shift in the way withholding tax relief is handled across the EU. While its full implementation may seem distant, things are moving quickly, with technical discussions and regulatory developments advancing at a fast pace. Talks are ongoing among all relevant stakeholders to ensure that the processes are well-structured, efficient, and make the best use of available technology. However, the complexity of the framework means that obligations for CFIs will be substantial, making it critical for them to stay informed and prepared for the upcoming changes.  

PwC Luxembourg is proud to be part of the working groups with the European Commission and in the heart of the discussion. Our team of experts will continue to provide you with updates on the progress of the directive’s implementation. 

If you are interested in discussing how the above will impact you further, please reach out to one of the contacts below or join the PwC Faster Club.