Reykjavik GMT
EY +354 595-2500
Borgartun 30 Fax: +354 595-2501 105 Reykjavik Email: ey@ey.is Iceland
Principal Tax Contact
Símon Jónsson +354 595-2500 Email: simon.jonsson@is.ey.com
Business Tax Advisory
Ragnhildur E. Lárusdóttir +354 595-2500 Email: ragnhildur.larusdottir@is.ey.com
Þorkell Bjarnason +354 595-2500 Email: thorkell.bjarnason@is.ey.com
Nótt Aradóttir +354 595-2500 Email: nott.aradottir@is.ey.com
A. At a glance
Corporate Income Tax Rate (%) 20 (a)
Capital Gains Tax Rate (%) 20 (b)
Branch Tax Rate (%) 20 (a)
Withholding Tax (%)
Dividends
Residents 20/22 (c)
Nonresidents 20 (d)
Interest Residents 22 (e) Nonresidents 12 (f)
Royalties from Patents, Know-how, etc. 20 (g)
Payments under Leases and Rent 20 (g) Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 10
(a) A 37.6% rate applies to partnerships. (b) Capital gains are taxed as ordinary income. Capital gains may be offset by extraordinary depreciation (for details, see Section B). (c) Dividends received by domestic companies are considered ordinary income and taxed at 20%. However, dividends received from domestic companies are fully deductible. Dividends received from foreign companies are also fully deductible, provided that the foreign companies are taxed in a similar manner to Icelandic companies. Dividends received by partnerships are taxed at 22%, and no deduction is allowed.
(d) Interest income and income from listed stocks (that is, dividends and capital gains), up to ISK300,000 a year, are exempt from income tax for nonresident individuals. A 20% withholding tax is imposed on dividends paid to nonresi dent entities. A 22% withholding tax is imposed on dividends paid to non resident individuals. Nonresidents can obtain a refund of the withholding tax or apply for an exemption from the withholding tax based on an applicable double tax treaty. If no double tax treaty applies, nonresidents must suffer the withholding. However, residents of European Union (EU), European Economic Area (EEA) or European Free Trade Association (EFTA) states or the Faroe Islands are eligible for a full deduction for dividends received from domestic companies in the same manner as domestic entities. Companies may
claim this deduction by filing a tax return. They are reimbursed accordingly for withheld taxes after the general assessment in the following year.
(e) A 22% withholding tax is imposed on interest paid to resident individuals and resident companies, but the actual tax on resident companies is 20% when the assessment takes place.
(f) Interest income and income from listed stocks (that is, dividends and capital gains), up to ISK300,000 a year, are exempt from income tax for nonresident individuals. A 12% withholding tax is imposed on interest paid to nonresi dent entities and nonresident individuals unless, on application, the Director of Internal Revenue grants an exemption from withholding tax based on an applicable double tax treaty. Alternatively, the withholding tax may either be refunded or not withheld. Interest on bonds issued in the name of financial undertakings or energy companies is not subject to withholding tax. The bonds must be registered at a central securities depository established in an Organisation for Economic Co-operation and Development (OECD), EEA or EFTA state or the Faroe Islands. Interest paid by Seðlabanki Íslands (the Icelandic central bank) in its own name or on behalf of the Icelandic treasury is also not subject to withholding tax.
(g) Royalties, payments under leases and rent payments that are paid to nonresi dent companies, partnerships and individuals are subject to withholding tax at a rate of 22%. A 20% rate applies to resident companies. A 37.6% rate applies to resident partnerships. These payments are not subject to withholding when paid to residents.
B. Taxes on corporate income and gains
Corporate income tax. Resident companies are taxed on their worldwide income. Resident corporations are those incorporated, registered, domiciled or effectively managed in Iceland. Nonresident companies are taxed only on their income earned in Iceland.
Rate of corporate tax. The rate of corporate income tax is 20%. The rate for taxable partnerships is 37.6%.
Capital gains. Capital gains result from profits derived from sales of assets. These gains are included in ordinary income and taxed at the normal income tax rates.
Capital gains may be offset by extraordinary depreciation on other fixed assets or on fixed assets acquired within two years of the sale. If the fixed assets are not acquired within two years of the sale, the gain is included in income, and a 10% penalty is imposed.
Profits from stock sales. Profits derived by domestic companies from stock sales are considered ordinary income. However, prof its derived from stock sales in domestic companies are fully de ductible. Profits derived by domestic companies from stock sales in foreign companies are also fully deductible, provided that the foreign companies are taxed in a similar manner to Icelandic companies and that their tax ratio is not lower than the general tax ratio in any member state of the OECD, any member state of the EEA, any founding state of the EFTA or the Faroe Islands.
Administration. The tax year is generally the calendar year.
The final due date for legal entities to submit their income tax return is 31 May. Monthly advance tax payments are due on the first day of each month except for January and October. Each advance payment equals 8.5% of the previous year’s tax. The tax due is determined when the annual assessment is issued. Companies generally must pay the unpaid balance in two equal monthly payments in November and December. Companies can apply for a reduction of the advance payments, but they must apply for the reduction before 31 May.
Advance rulings. Both resident and nonresident companies may request advance rulings on most corporate income tax consequences of future transactions. Rulings are issued only on matters of substantial importance and if all criteria are met. They are only binding for the tax authority if there is no change in the circum stances as they were presented.
Dividends. Dividends earned by domestic companies are consid ered ordinary income. Dividends are not subject to withholding tax when paid to domestic companies. Dividends received from domestic companies are fully deductible from dividend income in the annual assessment process and, as a result, effectively no taxable income is declared.
Dividends received from foreign companies are also fully deductible, provided that the foreign companies are taxed in a similar manner to Icelandic companies and that their tax ratio is not lower than the general tax ratio in any member state of the OECD, any member state of the EEA, any founding state of the EFTA or the Faroe Islands.
Dividends paid to domestic partnerships are subject to 22% with holding tax, and no deduction is allowed.
Withholding tax is imposed on dividends paid to nonresidents. The rate is 20% for companies and 22% for individuals. Tax trea ties may reduce or eliminate the dividend withholding tax. Nonresidents from EU, EEA or EFTA states or the Faroe Islands are eligible for a full deduction from dividends received from domestic companies in the same manner as domestic entities. Companies may claim this deduction by filing a tax return. They are accordingly reimbursed for withheld taxes in the general as sessment in the following year.
No withholding tax is imposed on distributions by taxable part nerships.
Foreign tax relief. Relief for double taxation may be obtained unilaterally under Icelandic domestic law or under a tax treaty. Unilateral relief may be granted through a tax credit against Icelandic income tax at the discretion of the Director of Internal Revenue for income tax paid in other jurisdictions. Request for relief under a tax treaty must be made in advance.
C. Determination of trading income
General. The computation of taxable income is based on net in come in the financial statements prepared according to generally accepted accounting principles. For tax purposes, several adjust ments are made, primarily concerning depreciation and write-offs of inventory.
In general, expenses incurred to generate and maintain business income are deductible.
Inventories. Inventories are valued at the lower of cost or market value. Cost must be determined using the first-in, first-out (FIFO) method. Five percent of the value of inventory at the end of the year is deductible.
Tax depreciation. Depreciation must be calculated using either the declining-balance method or the straight-line method. The straightline method applies to buildings, expendable natural resources and the right of ownership of valuable intellectual properties, including copyright, publishing rights, patent rights and brand rights. The declining-balance method applies to ships, aircraft, vehicles and machinery. Fixed assets cannot be depreciated below 10% of cost. The following are some of the applicable deprecia tion rates.
Assets Rate (%)
Buildings Office and retail
1 to 3
Industrial plants 3 to 6
Piers and greenhouses 6 to 8
Drilling holes and transmission lines
10 to 20
7.5 to 10 Ships, aircraft, cars carrying fewer than nine persons (except taxis)
Automobiles and other transport vehicles 20 to 35
Industrial machinery and equipment
10 to 30
Office equipment 20 to 35
Machinery and equipment for building and construction 20 to 35
Other movable property 20 to 35
The amortization period for goodwill ranges from 5 to 10 years. The amortization period for copyrights, patents, trademarks, designs, models, know-how or similar rights ranges from five to seven years.
Relief for losses. Losses may be carried forward for 10 years. Losses may not be carried back.
Groups of companies. Resident companies may use group consoli dation if one company owns at least 90% of the shares in another company or if at least 90% of the shares in a company are owned by companies that are members of the same tax-consolidated group. Group consolidation is for a minimum of five years. Resident companies that are part of a foreign group may use group consolidation if the foreign group is a resident of EU. EEA or EFTA states or the Faroe Islands. A domestic parent company that has a subsidiary in EU, EEA or EFTA states or the Faroe Islands may use accumulated losses from the time they requested limited joint taxation until the year the subsidiary is dissolved and the loss is verifiably unused.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax, on most goods sold in Iceland and most services rendered in Iceland
Higher rate 24
Lower rate for hotels, books and publications, food products, heating of houses and road tolls 11
Nature of tax Rate (%)
Social security contributions, paid by the employer on gross payroll 6.35 Commodity tax; on certain goods, including vehicles and fuel Various
E. Foreign-exchange controls
Iceland abolished the foreign-exchange controls in 2017.
Nonresidents may directly invest in most industries in Iceland, but they must notify Seðlabanki Íslands (the central bank) of such investments. The fishing industry is the principal industry in which investments by nonresidents are limited. Nonresidents may not own a majority in such companies.
F. Treaty withholding tax rates
Dividends A (a) B Interest Royalties % % % %
Albania 5 (c) 10 10 10
Austria 5 15 0 5
Barbados 5 15 10 5
Belgium 5 15 10 0
Canada 5 15 10 0/10 (b)
China Mainland 5 (c) 10 10 10 Croatia 5 10 10 10 Cyprus 5 10 0 5 Czech Republic 5 (c) 15 0 10 Denmark (d) 0 15 0 0
Estonia 5 (c) 15 10 5/10 (e)
Faroe Islands (d) 0 15 0 0
Finland (d) 0 15 0 0 France 5 15 0 0 Georgia 5 (c) 10 5 5 Germany 5 (c) 15 0 0 Greece 5 (c) 15 8 10 Greenland 5 (c) 15 0 15 Hungary 5 (c) 10 0 10
India 10 10 10 10
Ireland 5 (c) 15 0 0/10 (h)
Italy 5 15 0 5
Japan 0/5 (m) 15 10 0
Korea (South) 5 (c) 15 10 10
Latvia 5 (c) 15 10 5/10 (e)
Liechtenstein 0 15 0 0/5 (k)
Lithuania 5 (c) 15 10 5/10 (e)
Luxembourg 5 (c) 15 0 0
Malta 5 15 0 5
Mexico 5 15 10 10 Netherlands 0 15 0 0 Norway (d) 0 15 0 0
Poland 5 (c) 15 10 10 Portugal 10 (c) 15 10 10 Romania 5 (c) 10 3 5
Russian Federation 5 (j) 15 0 0
Slovak Republic 5 (c) 10 0 10 Slovenia 5 (c) 15 5 5
Dividends
Spain
Ukraine
(d)
United Kingdom
United States
Vietnam
Non-treaty jurisdictions
A Qualifying companies.
(c)
(c)
B Individuals and other companies.
15
15
22
Royalties
(l)
0/5 (i)
0/5 (i)
(f) 22 (g)
(a) Unless indicated otherwise, the rate applies to corporate shareholders with ownership of at least 10%.
(b) The lower rate applies to copyrights (except for films and similar items), computer software, patents and know-how concerning industrial, commercial or scientific experience (but not including any such information provided in connection with a rental or franchise agreement). The higher rate applies to other royalties.
(c) The rate applies to corporate shareholders with ownership of at least 25%.
(d) These are the rates under the Nordic Convention.
(e) The lower rate applies to royalties paid for the use of industrial, commercial or scientific equipment.
(f) A 12% withholding tax is imposed on interest paid to nonresident entities and nonresident individuals unless, on application, the Director of Internal Revenue grants an exemption from withholding tax. Alternatively, the with holding tax may be refunded.
(g) Royalties paid to nonresidents are subject to withholding tax at a rate of 22%. The net royalties (gross royalties less expenses) are normally included in ordinary income and taxed at the general corporate income tax rate unless a tax treaty provides a reduced rate.
(h) The lower rate applies to royalties paid for the use of, or the right to use, com puter software or patents or for information concerning industrial, commercial or scientific experiences if they are paid to a resident of the other contracting state that is the beneficial owner of the royalties.
(i) The higher rate applies to the following:
• Any information concerning industrial, commercial or scientific experi ence provided in connection with a rental or franchise agreement
• A trademark associated with an agreement referred to in the first bullet
• The copyright of a motion picture film or work on film or videotape or other means of reproduction for use in connection with television
(j) The rate applies if the Russian company owns directly at least 25% of the capital in the Icelandic company and the foreign capital invested exceeds USD100,000.
(k) Royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulas or processes may also be taxed in the country of origin. However, the taxation of such royalties may not exceed 5%. For other royalties, as defined in the treaty, the rate is 0%.
(l) The higher rate applies to royalties for the use of, or the right to use, patents, trademarks, designs or models, plans, secret formulas or processes.
(m) The 0% rate applies to corporate shareholders with ownership of at least 25%. The 5% rate applies if following circumstances exist:
• The company that is the beneficial owner has for a period of six months owned at least 10% of the company’s capital, in cases in which the paying company is a resident of Iceland.
• The company that is the beneficial owner has for a period of six months owned at least 10% of the voting power of the company, in cases in which the paying company is a resident of Japan.
Tax information and exchange agreements are in force with Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, British Virgin Islands, Brunei Darussalam, Cayman Islands, Cook Islands, Dominican Republic, Gibraltar, Grenada, Guernsey, the Hong Kong Special Administrative Region (SAR), Isle of Man, Jersey, Liberia, Liechtenstein, the Macau SAR, Marshall Islands, Mauritius,
Monaco, Montserrat, Netherlands Antilles (applicable to the suc cessor jurisdictions of Netherlands Antilles), Niue, Panama, St. Lucia, Samoa, San Marino, Seychelles, Turks and Caicos Islands, and Uruguay.