Key tax factors for efficient cross-border business and investment involving Iceland.
No, however, Iceland is a Member State of the European Economic Area (EEA)
|Belgium||Germany||Rep. of Korea||Russia|
|Estonia||Rep. of Ireland||Norway||Ukraine|
|Faroe Islands||Isle of Man||Poland||US|
Public Limited Liability Company and Private Limited Liability Company
The minimum initial capital of a public limited liability company is ISK 4,000,000, whereas the minimum initial capital of a private limited liability company is ISK 500,000.
A company is resident if registered in Iceland, its legal seat is in Iceland according to its Articles of Association or its place of effective management is located in Iceland. Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Icelandic source income.
The fiscal year is the calendar year. In general, companies must file their tax returns by the end of May of the following year. Companies are required to make advance tax payments each month, except January and October, until the assessment has been completed.
The corporate income tax rate for limited liability companies is 20 percent. The rate is 36 percent for other legal partnerships registered as taxable entities.
On dividends paid to non-resident companies
18 percent. Tax withheld on dividends paid to companies resident in EEA, EFTA or the Faroe Islands may be refunded in connection with the tax assessment in November of the following year after the distribution has taken place, assuming the foreign company files the annual tax return.
On interest paid to non-resident companies
10 percent. Possible reductions applicable. Any premium or discount arising in transactions between two non-residents with debt of an Icelandic company is not subject to WHT in Iceland.
On patent royalties and certain copyright royalties paid to non-resident companies
On fees for technical services
No, it is not specifically identified in the law, but can be included under royalties. In most DTT, technical services are taxed the same as royalties.
On other payments
Gains from the disposal of shares in Icelandic companies are subject to a WHT: 20 percent in the case of individuals and 18 percent in all other cases. This also applies to transactions between two non-residents.
Branch withholding taxes
Branches fall under the same rules as LLC.
Dividend received from resident/non-resident subsidiaries
Dividends received by Icelandic companies are taxable income, but the same amount can be deducted if it can be demonstrated that the profits of the distributing company have been taxed under provisions that do not substantially deviate from those prevailing in Iceland and have been subject to a tax rate that is not lower than the general tax rate in any OECD, EEA, EFTA country or the Faroe Islands.
Capital gains obtained from resident/non-resident subsidiaries
The same rules as above apply to capital gains except that losses exceeding gains from the disposal of shares are non-deductible and are not allowed to be carried forward.
Losses may be carried forward and offset against taxable income in the following 10 years. No carry-back is allowed.
Companies may opt for consolidated taxation if one company owns at least 90 percent of the shares in another company. Consolidated taxation allows losses from one company to be offset against profits from the other companies. Consolidated taxation may not be extended to non-resident companies.
Registration duty for forming a private liability company is around EUR 800 and public liability company around EUR 1,600. A minimum fee is charged for changes in relation to the company which must be reported to the Registry of Companies.
On the transfer of shares
On the transfer of land and buildings
Yes, on deeds on immovable property and vessels. If the transfer is linked to Company Law merger, conversion of a private limited company to a public limited company or a division of a company, then the stamp duty does not apply.
0.8 percent stamp duty if the owner is an individual and 1.6 percent stamp duty if the owner is a legal entity.
Real estate taxes
Yes. The provision applies both to Icelandic individual and corporate holders of a company situated in a low tax country. A “low tax country” is where income tax is less than two-thirds of the Icelandic income tax. “Control” in this case is direct or indirect ownership of more than 50 percent, or if control has been held within the financial year.
General transfer pricing rules
The new transfer pricing provision is based on the arm’s length principle. If prices are not in accordance with the principle they must be adjusted according to the transfer pricing guidelines issued by the OECD.
Companies with total revenue or assets at year-end above 1,000 million ISK are obliged to keep documentation about the nature and extent of transactions with related parties, the nature of the relationship and the basis of price decided. The document obligation refers to the guidelines issued by the OECD.
General anti-avoidance tax rule. Applicable if tax entities are considered to have negotiated in a manner that differs significantly from common practice in such transactions. According to case law, tax authorities need to demonstrate that the transaction was made between related parties with little or no commercial purpose other than the avoidance of tax. Parties have extensive reporting obligations to tax authorities, which also includes foreign subsidiaries or affiliates. Non-compliance with that obligation can be used against a party in assessment of facts.
Yes, a binding ruling may be requested by resident or by non-resident companies on most aspects of corporate income taxation.
A ruling can normally be obtained only on the tax consequences of a future transaction and is only issued if it is of substantial importance.
In respect of filmmaking in Iceland: 20 percent of eligible production costs is refunded.
An innovative company that owns research or development projects is entitled to a special income tax deduction amounting to 20 percent of expenses incurred on the projects.
The standard rate is 24 percent.
Ágúst Karl Guðmundsson
KPMG in Iceland
T: +354 545 6152