skattar 2016 enskii · pwc ehf. taxes in iceland 2016 pwc 7 6. the rights are not transferable. 7....

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Skattar 2011Upplýsingar um skattamáleinstakling a og fyrirtækja

Taxes in Iceland

2016

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PwC ehf. Taxes in Iceland 2016

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Table of Contents

1. Individuals Residing in Iceland ..................................................................................................5

Taxes and Payments ......................................................................................................................................................5

Allowances, Credits and Deductions ............................................................................................................................7

Taxable Benefits.............................................................................................................................................................9

Miscellaneous ..............................................................................................................................................................10

Individuals with Limited Tax Liability .......................................................................................................................10

2. Corporations............................................................................................................................ 13

Income Tax ..................................................................................................................................................................13

Other Taxes and Duties ...............................................................................................................................................16

Financial Activities Tax (FAT) ....................................................................................................................................16

A temporary addition to FAT......................................................................................................................................16

Bank tax........................................................................................................................................................................16

Accommodation tax.....................................................................................................................................................16

Value Added Tax - VAT ...............................................................................................................................................18

3. Foreigners in Iceland ...............................................................................................................22

Visas ............................................................................................................................................................................ 22

Live and Work in Iceland ........................................................................................................................................... 22

Nordic Citizens ...................................................................................................................................................... 22

EEA Citizens .......................................................................................................................................................... 22

Citizens outside the EEA....................................................................................................................................... 22

Employment Agencies .......................................................................................................................................... 22

23

4. Miscellaneous ......................................................................................................................... 24

Company Types .......................................................................................................................................................... 24

Public Limited Companies.................................................................................................................................... 24

Private Limited Companies .................................................................................................................................. 24

Cooperatives .......................................................................................................................................................... 24

Limited Partnerships ............................................................................................................................................ 24

Foreign Currencies ..................................................................................................................................................... 24

Financial Statements / Accounting in Foreign Currencies................................................................................. 24

Currency Gains and Losses in Business Transactions ........................................................................................ 26

Rules on Foreign Exchange .................................................................................................................................. 26


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Capital Movements of Foreign Currencies .......................................................................................................... 26

Capital Movements of Domestic Currencies ....................................................................................................... 26

Temporary Reimbursements in Respect to Filmmaking in Iceland........................................................................ 26

Tax authorities ............................................................................................................................................................ 28

PwC offices .................................................................................................................................................................. 29

PwC offices ................................................................................................................................. 30


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1. Individuals


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1. Individuals Residing in Iceland

Taxes and Payments

Income Tax and Municipal TaxIncome tax for individuals is divided into state income tax and municipal tax. Income tax and municipal tax arewithheld and paid monthly. The tax rate for individuals is progressive as follows:

IncomeTax

MunicipalTax

Total

Step I:

On the first ISK 336,035 (ISK 4,032,420 per year) 22.68% 14.45% 37.13%

Step II:

On the next ISK 500,955 (ISK 6,011,460 per year) 23.9% 14.45% 38.35%

Step III:

On any income over ISK 836,990 (ISK 10,043,880per year) 31.80% 14.45% 46.25%

Should an individual work for more than one employer during the same tax period the employee has to makesure the correct withholding percentage is used to ensure accurate tax payment. If salary from one employer isabove ISK 336,035 then the percentage should be 38.35 of the salary from the other employer, or in some cases46.25%.

Individuals who wish to file joint tax returns must take into consideration whether one individual’s taxableincome is below ISK 10,043,880 while the other person earns taxable income above this threshold. When this isthe case, up to half the unused amount of Step II of the individual with the lower income is transferred to theindividual with the higher income, up to ISK 3,005,730. These considerations do not apply to withholding tax,but are applied during the final tax assessment.

Below is an example of a tax assessment for married couple/cohabitants based on their yearly income:

Taxpayer 1 Taxpayer 2

Taxable annual income ISK 7,000,000 Taxable annual income ISK 12,000,000

22.68% income tax is calculated on the first ISK4,032,420

22.68% income tax is calculated on the first ISK 3,709,680

23.9% income tax is calculated on the next ISK 2,967,580 23.9% income tax is calculated on the next ISK 6,011,460

Taxpayer 1 has ISK 3,043,880 “unused” in step II. 23.9% income tax is calculated on the next ISK 1,521,940

Half of the “unused” allowance in step II is transferred toTaxpayer 2.

31.80% income tax is calculated on the remaining amountof ISK 434,180

Children born on or after 1 January 2001 pay 6% income tax on income over ISK 180,000 per year and they arenot entitled to personal tax credits.


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Contribution to the NationalBroadcasting ServiceEvery person between the ages of 16 to 69 withtaxable income in 2015 must pay a contribution tothe National Broadcasting Service.

The payment in 2016 ISK 16,400

Contribution to the ElderlyFundIceland maintains a special fund for the elderly,aside from pension contributions. Everyonebetween the ages of 16 to 69 with taxable income in2014 must make a contribution to the elderly fund.

The payment in 2016 is ISK 10,464

Capital Income TaxThe tax rate on an individual’scapital income is

20%

Interest IncomeInterest income derived from bank deposits,mutual and investment funds, bonds or otherfinancial deeds, any kind of exchange rate profitand any other income from monetary assets aresubject to 20% tax.

No tax is calculated on total interest revenue up toISK 125,000 per year for an individual. Thispersonal allowance is not applicable forwithholding tax, but applies in the final taxassessment.

DividendsDividends are subject to a 20% tax rate.

In the event of share decrease or the liquidation ofthe company, payments to shareholders exceedingthe purchase price are treated as dividends and assuch are subject to 20% tax.

Rental Income

Rental income from residential properties andliquid assets is subject to 20% tax. Note that only50% of rental income is subject to taxation.Individuals renting out residential property for alimited period of time can deduct the rental cost ofthe property by netting the cost they incur forpersonal housing against the income generated.

Renting out residential property is not considered abusiness operation or a form of self-employmentfor tax purposes unless the total depreciable taxbase of the property amounts to ISK 29.324.700 forindividuals or ISK 58.649.400 for married orcohabitating couples. These figures are inflationadjusted.

Capital GainsGains from the sale of privately owned property aresubject to 20% tax.

Gains from the sale of private residential propertyare tax-exempt if they have been in the taxpayer’sownership for over two years.

In general, an individual’s capital gains from thesale of privately owned liquid assets are tax-exempt.

Capital Gains from Sale of SharesCapital gains from the sale of shares are subject to20% tax.

Profits from DerivativesNet profits from derivatives are subject to 20% tax.

Purchase of Employee Stock OptionsAn employee’s gains from the purchase of employeestock options that have been acquired throughemployment are subject to progressive income tax.If certain conditions are met, the employee’s gainsderived from stock options will be taxed at the samerate as capital gains.

The conditions are:1. The options rights are available to every

employee in the company. The share

certificates and employee’s shares shall

have the same rights as other share

certificates and shares of the company.

2. The employee is permanently employed

with the company or another company

within the same consolidated company

group.

3. At least 12 months have passed from the

issue of options rights until they are

exercised.

4. The warrant purchase price cannot be

lower than the weighted average of the

company’s share transactions for ten days

before the issue date.

5. The employee has to hold the ownership of

the share certificates or shares for at least

two years after the option rights are

exercised.


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6. The rights are not transferable.

7. Each employee’s purchase cannot exceed

ISK 600.000 per year.

8. An advance schedule about the warrants

must be sent to the Internal Revenue

Directorate for confirmation.

Allowances, Credits andDeductions

Personal Tax CreditsEvery taxpayer of 16 years and older is entitled topersonal tax credits.

Personal Tax Credits

Personal tax credits for 2016 ISK 623,042

Personal per month ISK 51,920

Should a person move to or from Iceland, he or shewill receive personal tax credits for the period theyreside in Iceland. The period is calculated in days.

Unused personal tax credits are transferable in fullbetween married couples and cohabitants.

From the year 2016 the tax credit is electric.

Private Housing BenefitsIndividuals who purchase premises for theirpersonal use may be entitled to private housingbenefits as a compensation for interest expenses.

In general, when calculating interest subsidies, theinterest payments taken into account can neverexceed 7% of the remaining value of the mortgageof a residential property at the end of the calendaryear.

The amount of interest subsidies is based on paidinterest on loans obtained for the purpose offinancing the purchase of the individual residence.

The maximum interest payments forcalculating interest subsidies are:

Individuals ISK 800,000

Single parents ISK 1,000,000

Married/cohabitant couples ISK 1,200,000

8.5% of the income tax base (total income base ofcouples) is deducted from interest payments.

Added to that are wages and location allowance byIcelandic residents in full-time studies abroad.Interest revenues do not reduce interest paymentswhen the interest subsidy is calculated, but they areincluded in the income tax base when calculatingthe reduction of the subsidy on account of income.Interest subsidies calculated in this way areproportionally reduced if net assets exceed:

For individuals/single parents:

ISK 4,000,000

No subsidies if assetsexceed

ISK 6,400,000

For married /cohabitant couples:

ISK 6,500,000

No subsidies if assetsexceed:

ISK 10,400,000

Maximum private housing benefit in 2016

Individuals ISK 400,000

Single parents ISK 500,000

Married /cohabitant couples ISK 600,000

The final private housing benefit is calculated in thetax assessment for the previous year. Please notethat registration costs and stamp duties formortgages or title deeds are not counted as interestpayments, although lending charges are eligible forprivate housing benefits.

When calculating the private housing benefit forthe year in which an individual acquires aresidential property, the private housing benefit iscalculated as beginning in the same quarter that thefirst mortgage for the property was paid. The limitfor interest payments, income tax base and privatehousing benefits are calculated proportionally.


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Child BenefitsChild benefits are paid the year after the child isborn and until it reaches 18 years of age. Childbenefits are income related.

Maximum annual child benefits formarried couples/cohabitants:

For first child ISK 199,839

For each subsequent child ISK 237,949

Maximum child benefits for singleparents:

For first child ISK 332,950

For each subsequent child ISK 341,541

Child benefits are reduced if annualincome exceeds:

Married couples/livingtogether

ISK 4,800,000

Single parents ISK 2,400,000

Reduction percentage:

One child 4%

Two children 6%

Three children or more 8%

In addition to the above, income related Childbenefits is paid for all children younger than 7years. The amount is ISK 119,300 per year for eachchild and the reduction percentage is 4% for everychild.

The income base for calculating child tax benefitsconsists of the general income tax base and netwealth.

Individuals who live abroad but are domiciled inIceland for tax purposes, e.g. students, may beeligible to receive child benefits, but only up to the

point that the child benefits are higher in Icelandthan the equivalent payments in the relevantcountry.

Child benefits lower than ISK 5.000, for eachparent, in the year 2016, will not be paid.

Child benefits cannot be netted out against publiclevies.

Car Allowance DeductionsEmployees’ verifiable operating costs of their carused in the service of their employment aredeductible from the car allowance provided byemployer to certain employees. To qualify for thededuction, the employee needs to keep a dailydriving log and detail total costs and usage asexplained in form RSK 3.04.

The maximum available deduction from the carallowance is ISK 68-110 per km., depending on howmany kilometres the employee has driven. Pleasenote that these amounts may vary during the yearand also that special rules apply when driving offroad.

The deduction cannot exceed the car allowancereceived. If the costs are lower than the allowancethe difference is treated as taxable income.

Per Diem PaymentsPer Diem payments are paid for employees’occasional travels outside of their contractual placeof work. The payments should cover the employee’sexpenses incurred by being away from home,including costs for accommodation, food and othertravel related expenses. Employees can reportdeductions against the per diem payments as statedin the Principal Tax Rates published by the InternalRevenue Directorate, www.rsk.is. Tax does not haveto be withheld from per diem payments as long asthe payments are not higher than stipulated in thePrincipal Tax Rates. If the payments are higher, thedifference is liable to withholding tax.

Home Improvement VATBenefitsThose who are working on improvements to theirhomes in 2016 are entitled to a 60% refund of VATon work of contractors that takes place on site.


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Pension Fund ContributionsEvery employee from 16 to 70 years old and everyemployer must contribute to a pension fund. Theminimum contribution is 12% (4% for employeesand 8% for employers) of all employees’ and self-employed persons’ remunerations. The employee’scontribution (4%) is deducted from his or hertaxable income. Employment benefits andpayments for refund of paid expenses are notcounted as taxable income in this context.

In addition to the minimum contribution, anemployee can contribute and deduct up to anadditional 4% from his or her taxable income, aslong as the contribution is used to increase his orher pension rights. This additional contribution canbe paid into a private pension fund.

Should the employer’s contribution to the pensionfund exceed 12% of the employee’s remuneration,and also exceed ISK 2.000.000 per year, the excessshall be calculated as taxable income.

Temporary employees from EEA member countrieswho are employed by foreign employers are exemptfrom pension fund contributions if they completean A1 certificate.

Taxable Benefits

Car BenefitsShould an employer provide his or her employeewith a motor vehicle at his or her full and unlimiteddisposal, the employee has to report car benefits fortax purposes.

The car benefits are calculated as a percentage ofthe car’s estimated value:

Cars taken into use in 2014 or later: 26%

Cars taken into use in 2011-2013: 21%

Cars taken into use in 2010 or earlier: 18%

If an employee pays the operating expenses of thevehicle he or she uses, the percentage should belowered by 6% of the price of the vehicle as listed inthe Directorate of Internal Revenue’s VehicleRegister. The year of manufacture is considered theyear of registration for second-hand importedvehicles. Monthly benefits are 1/12 of the benefitsas calculated above for every month, and applywhen the car is in use for only a part of the year.

Housing BenefitsIf an employer provides his or her employee withaccommodation, it must be reported as income onthe employee’s tax return. The income is calculatedas 3.5%, 4% or 5% of the real estate value of theaccommodation in question. The percentage iscalculated according to the location of theaccommodation (it is 5% for accommodation inReykjavik).

Free boardIf an employer provides his employee and/or familymembers with free board, it must be reported asincome on the employee’s tax return, according tothe following table:

Free board:

Breakfast 326 kr.

Lunch or dinner 489 kr.

Full board per day 1.304 kr.

In case of children under 12 years old the amountsmay be reduced by a quarter.

Assessment and Payment of TaxThe income year is the calendar year.

The final assessment should be completed no laterthan ten months after the end of the income year.

Dividends and interest income are capital gains andare liable for withholding tax. Rental income, othercapital gains and other income from assets are notliable for withholding tax.

When the tax return deadline has expired, theInternal Revenue Directorate calculates ataxpayer’s income tax according to the tax returnsubmitted. Withholding tax on salary and capitalincome is deducted from the final tax assessment. Ifthese items are higher than the final tax assessmentthe difference is used towards tax debt repaymentand/or the taxpayer is refunded.

Applying for Income Tax ReliefTaxpayers and dependent individuals between 16and 21 years of age, who are students or have forsome other reason such low income that theycannot support themselves, can apply to theDirectorate of Internal Revenue to have theirincome tax base reduced. No deduction is availableif the dependent is in a field of study eligible forstudent loans.


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The Directorate of Internal Revenue can also, inother circumstances, reduce an individual’s incomeand municipal tax base. Those specialcircumstances are:

Sickness, accident, old age and death:

If any of the above reduces the taxpayer’s ability topay tax.

Sickness or disability of a child suffering from achronic disease:

A condition for deduction is production ofverifiable records of expenses incurred bysupporting the child that exceed the normal costs ofraising a child.

Caring for parents or other family members:

A condition for deduction on account of the aboveis production of verifiable records of expenses tocorroborate incurred costs of supporting parents orother family members.

Damage of property:

If the taxpayer has suffered considerable damage tohis or her property, for which he or she did notreceive compensation.

Loss of due claims that are not business-related:

The tax base reduction application needs to besubmitted electronically with the tax return onform RSK 3.05. The form contains information onwhich documents are needed to support theapplication.

Miscellaneous

Inheritance TaxInheritance tax is 10%.

No inheritance tax is levied on the first ISK1.500.000 of an inheritance. If the inheritance ispaid out before death, a flat rate of 10% is levied onthe total amount without any minimum allowance.

Spouse does not pay inheritance tax. This is alsoapplicable for registered cohabitants where there isa will and the surviving cohabitant is mentioned inthe will without a doubt as a cohabitant.

Inheritance tax is not paid from gifts toorganisations and non-profit organisationsoperating in public good.

Inheritance tax is not paid from pension fundsavings provided that provision in the Income TaxAct are applicable.

The tax base is the net value of all financial assetsand properties owned by the deceased at the time ofhis or her death (after debts and expenses havebeen deducted). The value is decided by the marketvalue of the asset in question. Property value isbased on property appraisal from the PropertyRegistry.

Inheritance tax is not paid on assets left to asurviving spouse or cohabitant or on any pensionthat the surviving spouse or cohabitant receives.

The estate of the deceased is taxed as a corporation,with a 36% tax rate.

Individuals with LimitedTax Liability

Limited Tax LiabilityLimited tax liability applies to individuals who arenot domiciled in Iceland but are liable to payincome tax derived from income earned in Iceland,irrespective of any income they may be earningelsewhere at the same time or within the samecalendar year. Double taxation treaties incorporatevarious clauses that allow for the exemption ofincome tax on such income, which without suchtreaties would be taxable in Iceland.

Tax Rates – Tax CollectionNon-residents who stay in Iceland temporarily andearn an income are subject to local income tax onthose earnings. The income tax rate is the same asfor local taxpayers, which is 22.68% to 31.80%,depending on income. In addition to income tax, amunicipal tax of 14.45% is levied. These individualsare entitled to a personal tax credit in directproportion to the days they reside in Iceland.

By presentation of a completed A1 certificate,employers of individuals from EEA membercountries are subject to a lower rate of SocialSecurity Contribution, i.e. 0,425%. This exemptionis dependent on equivalent payments being madein the individual’s country of residence.

Individuals in Iceland who are involved inoperating a permanent business or receive a shareof the profit of operating such a business, pay22,68% to 31,80% income tax on the income taxbase. Municipal tax is paid to the municipalitywhere the majority of the earnings were earned. Nopersonal tax credits are available.


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A 20% capital gain tax is levied on capital gainsfrom real estate, capital gains from shares, anddividends.

Interest income is subject to 10% tax. No tax shallbe levied on interest income up to ISK 125.000.

Rental income from residential properties andliquid assets is subject to a 20% tax rate. However,no tax is levied on 50% of an individual’s incomederived from renting a residential property forresidence of the lessee. Individuals receiving rentalincome from residential properties can deductrental cost from rental income.

Directors’ Fees, etc.There is a 20% income tax, as well as municipal tax,levied on remuneration for directors, remunerationfor financial advisors acting in a managementposition or other committee work, severance pay,funding or equivalent payments for services orbusiness in Iceland.

Pensions and payments from the nationalinsurance fund are taxed as income, i.e. 22.68% to31.80%, plus municipal tax. Personal tax creditsmay be used for income tax on pensions andinsurance payments. If the personal tax credits arenot used in full, the unused part can be used againstmunicipal tax levied on the same income. Anypersonal tax credits remaining unused becomeinvalid and cannot be transferred between spousesunless both of them are receiving pensions or socialinsurance payments.

Entertainment, etc.Individuals who receive payments forentertainment or sporting activities as profit sharespay a 15% income tax on gross payment, plusmunicipal tax.

Tax Release on Grounds of aDouble Taxation TreatyTo apply for an exemption from tax liability inIceland on grounds of provisions in a doubletaxation treaty, form RSK 5.42 must be completedand returned to the Directorate of InternalRevenue.

In cases where taxes have already been withheld inspite of grounds for exemption, an applicationunder double taxation agreements for a refund oftaxes paid in Iceland can be filled out by completingand submitting application form RSK 5.43 to theDirectorate of Internal Revenue.

Withholding Tax CollectionIncome tax for individuals is divided into stateincome tax and municipal tax. Income tax andmunicipal tax are withheld at source monthly.Dividends are also subject to withholding tax atsource.

Assessment and Payment of TaxIndividuals working in Iceland as employees aresubject to limited tax liability and will need toprovide a tax return when leaving the country andare subject to a tax assessment.


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2. Corporations


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2. Corporations

Income Tax

Tax RatesIn the 2016 income year, the tax rate for limitedliability companies and limited partnershipcompanies is 20%. The tax rate for othercorporations (e.g. partnerships) is 36%.

Taxable IncomeCorporations pay tax on their income less operatingexpenses. Deductible operating expenses compriseall the expenses and costs needed to provide, insureand maintain the income.

Capital Gains from the Sale ofSharesCapital gains from the sale of shares are treated astaxable income in the year the sale takes place.

Limited liability companies, privately ownedcompanies, limited partnership companies(independent tax entity), reciprocal inter-insurancecompanies, cooperative societies, othercooperatives and cooperative chains can deductcapital gains, incurred by the sale of shares, fromtheir income. The same applies to capital gains thatcorporations of similar company structures, withlimited tax liability in Iceland that are domiciled inanother EEA member country, in the EU or in theFaroe Islands, have incurred by selling shares.

The above is valid regardless of whether the capitalgain is incurred by selling shares in companiesregistered in Iceland or abroad, as long as the sellercan show that the non-resident company’s capitalgain has been subject to similar taxation as it wouldhave in Iceland and that the tax percentage is notlower than the tax percentage in any member stateof the OECD, EEA or EFTA.

DividendsPublic limited companies and private limitedcompanies can deduct from their taxable incomereceived dividends from limited liability companiesand limited partnership companies, under certainconditions. The same applies to dividends receivedfrom abroad if the company’s profits that are beingdistributed have undergone similar tax treatmentas they would have if distributed in Iceland. The tax

percentage on the non-resident company’s profitscannot be lower than the general tax percentage inany member state of the OECD or the EEA.

Partnerships cannot deduct received dividends anda 20% tax is applied on dividend income (instead of36%).

Tax Credit for InnovativeCompaniesThe objective of Act no. 152/2009 on support forinnovative companies is to improve the competitiveconditions of innovative companies and to fosterresearch and development work by providinginnovative companies with a right to tax credits inrespect of costs of innovative projects. Aninnovative company must obtain confirmation withthe Icelandic Centre for Research in order to qualifyfor a special tax credit against assessed income taxof 20% of the paid cost of its research anddevelopment projects. As a general rule, themaximum deductible cost is ISK 100.000.000 peroperational year.

Controlled Foreign CompanyAny individual who either directly or indirectlyowns a share in any kind of a company, fund, ororganization domiciled in a low-tax jurisdictionmust pay income tax on the profit of suchcorporations in direct proportion to his or her ownshare, regardless of distribution. The same appliesto taxpayers chairing companies, funds,organizations or associations in low-taxjurisdiction, from which they receive direct orindirect benefits. In order for the above to apply,the foreign party must be domiciled in the low-taxjurisdiction; half the ownership of the foreign partymust be directly or indirectly in the hands ofIcelandic taxpayers, or they must have effectivemanagement and executive control during theincome year. Controlled Foreign Companyregulations do not apply if a fund or anorganization is protected by a double taxationtreaty between Iceland and the low-tax country or ifsuch entities are registered in another EEA membercountry where they have legitimate businessoperations and the countries have assigned adouble taxation treaty between them.


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Joint Taxation for CompaniesCompanies can apply for joint taxation if the parentcompany owns at least 90% of the subsidiarycompany or if the parent company and thesubsidiary company together own at least 90% inanother subsidiary and the companies share thesame fiscal year. The ownership must have lastedthe full fiscal year, except in the case of a newlyformed or a liquidated subsidiary. Joint taxation isgranted for five years at a time. If joint taxation isterminated, at least five years must pass until it canbe granted again. In joint taxation, each year isevaluated before losses from earlier years are takeninto account. The losses of a company under jointtaxation are evaluated in proportion to the profit ofthe companies.

Tax LossesTax losses can be carried forward for 10 years andcan be deducted from the operating revenue ifsatisfactory clarification has been made for the taxlosses in the year the losses were generated.

Transfer PricingWhen pricing or terms of business or financialarrangements between related parties are differentfrom what might be expected to be in similartransactions between unrelated parties, taxauthorities have the power to evaluate what thecorrect pricing should be and reassess taxes of theparty in question. This applies to the generalpurchase and sale of goods and services, tangibleand intangible assets and any financialinstruments.. Tax authorities can reassess taxes forup to six years prior to the year in which thereassessment takes place.Legal entities are considered related when they arepart of a group, or are under the direct and/orindirect majority ownership or management

control of two or more legal entities within thegroup, or when majority ownership of one legalentity over another is present in a direct or indirectmanner, or entities directly or indirectly majorityowned or under the administrative control ofindividuals who have family ties, e.g. individuals ina marriage or registered partnership, siblings andpersons related to each other in a direct line..

If a legal entity’s operating revenues in one fiscalyear, or total assets at the beginning or at the end ofthe fiscal year, exceeds 1 billion ISK, it is bound todocumentation duties from the next fiscal yearregarding transactions with related legal entitiesabroad. The legal entity in question must thenrecord information about the nature and extent oftransactions with the related legal entity andinformation on what the price is based on.

The legal entity is obliged to keep data regardingtransactions with related legal entities for sevenyears. If the tax authorities request access todocumentation, the legal entity has 45 days torespond.

In addition to specific rules regarding transferpricing in domestic law it should be noted thatthere are also certain provisions in domestic lawthat contain the so-called arm's length principle,which states that when a deal or transactionbetween the parties significantly differs from thenorm in such transactions, the tax base can bedetermined and reassessed according to what thetax authorities consider to be normal in suchcircumstances.


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Asset Depreciation PercentageMinimum-Maximum

Ships, ship equipment and personal vehicles 10%-20%*

Aircraft and accessories 10%-20%*

Heavy machinery, industrial machinery and equipment 10%-30%*

Rigs, pipeline systems and other equipment used for research and productionof hydrocarbons

10%-30%*

Office equipment 20%-35%

Machinery, equipment and vehicles that are not covered in the abovecategories

20%-35%

Residential, commercial and office accommodation 1%-3%

Factory buildings, garages, warehouses, etc. 3%-6%

Purchased proprietary rights for ideas and trademarks 15%-20%

Purchased goodwill 10%-20%

*The depreciation base for these assets is their purchase value less prior depreciation (book value).

Purchased fishing rights (quotas) cannot be depreciated. Start-up costs for agricultural production rights can bedepreciated without revaluation with steady payments over five years.

The following assets can be depreciated in full in the year they are initiated or paid with steady payments overfive years:

a) Start-up costs, such as enterprise registration and obtaining operation licences.b) Cost of research, development, marketing, obtaining patents and trademarks. If the use of

individual assets does not fall into the same depreciation category, the depreciation base will bedependent on how much of it is used, so that if an asset is used for three-quarters or more forthe same operation, the whole asset will have the same depreciation percentage.

Assessment and Payment of TaxIncome tax is paid on income during the calendaryear prior to tax assessment. However, in certaincircumstances, the Internal Revenue Directoratecan allow a different fiscal year from the calendaryear.

At the beginning of every year the finance minister,in conjunction with the Internal RevenueDirectorate, advertises the final date for taxassessment. The final assessment must be finalizedno later than ten months after the end of theincome year.

Payment according to the assessment is splitbetween two payment dates, 1 November and 1December following the tax assessment.

At the beginning of every year, the InternalRevenue Directorate determines the time periodavailable to taxpayers for submitting their taxreturns and supporting documentation.

Advance tax payments are due on the first day ofevery month, except January and the month whenthe annual assessment is finalized. Corporationspay income tax in advance, which is in turndeducted from the final tax assessment. Theadvance tax amounts to 8.5% of the 2013 incometax on each due date. In total the advance taxpayments amount to 68% of the income tax for2014.

Income tax payments on dividends and interestincome are due every quarter. Due dates are 20April, 20 July, 20 October and 20 January, and thefinal deadline for payment is 15 days later.


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Other Taxes and Duties

Employer’s Contributions intoPension FundsThe minimum contribution by employers into theiremployees’ pension funds is 8% of each employee’ssalary. An employer’s extra contribution intoprivate pension funds is usually 2% against acontribution from employees.

Social Security ContributionsThe social security contribution paid by employersfor 2016 is 7,35%. An additional social securitycontribution for fishermen is 0.65%. The socialsecurity contribution for taxpayers who havesubmitted the A1 form is 0.425%.

If remuneration or paid salary to others does notamount to ISK 504.000 per year, the taxpayer canpay the social security contribution with onepayment at the end of the year instead of payingmonthly instalments.

Agriculture DutyThe agriculture duty base is the turnover of dutyliable for producers of agricultural produce andassociate services. The agriculture duty percentageis 1.2% of the duty base.

Financial Activities Tax (FAT)A 5.5% tax will be levied on all salary paymentsmade by financial institutions, including insurancecompanies. The tax will be collected monthly.

A temporary addition to FATAn addition of 6% to FAT will be levied andcollected on total salary payments that exceed ISK 1billion. This tax is paid by the same entities that aresubject to the general FAT.

Bank taxFinancial services permitted to operate as banksand savings banks are subject to 0.376% tax ontotal debt of more than 50 billion ISK at year end.

Accommodation taxThose who sell accommodation that is subject toVAT are liable to collect and return a tax of ISK 100for each sold night.

Carbon TaxA carbon tax for liquid fossil fuels is paid to thetreasury. Liquid fossil fuels are gas and diesel oils,petrol, aircraft and jet fuels and fuel oils. Allimporters and importers of fossil fuels are liable forthe carbon tax regardless of whether it is for retailor personal use. The tax rates are:

Carbon Tax

ISK 5.90 per litre of gas and diesel oils

ISK 5.15 per litre of petrol

ISK 6,50 per kilo of mineral oil gas and othercarbohydrate gases

ISK 7.30 per kilo of fuel oil

Carbohydrate TaxCorporations licensed for carbohydrate researchand/or processing, as well as anyone who directlyor indirectly participates in the processing ordistribution of carbohydrates must pay a processingtax, which is independent of processingperformance, and a carbohydrate tax of profits.

Limited Tax LiabilityLimited tax liability refers to corporations that arenot domiciled in Iceland but are liable to payincome tax on income derived in Iceland regardlessof any other income they may be earning elsewhereat the same time or in the same calendar year.Double taxation treaties incorporate various clausesthat allow for the exemption of income tax on suchincome, which without such treaties would betaxable in Iceland.

Tax Rates – Withholding TaxesNon-resident corporations receiving payments forservices or business operations in Iceland andcorporations operating a permanent establishmentin Iceland, participating in the operation of apermanent establishment or receiving a profit fromsuch establishments, are subject to income tax fortheir Icelandic income at the same rate as applies toresident corporations. Income tax is levied on theincome tax base, i.e. income less the alloweddeductions. The following tax rates apply:

20% income tax for limited liability

companies or private limited liability

companies.


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36% income tax for other corporations,

such as certain cooperatives, limited

partnership, partnerships companies,

funds and estates of the deceased.

Non-resident corporations that receive dividends orcapital gains from shares in Iceland are subject to18% withholding tax on their income. Withholdingtax on dividends and capital gains is a temporarypayment towards the final tax assessment.Corporations domiciled in countries within theEuropean Economic Area are entitled to certaintax-free allowances against received dividends andcapital gains. Non-resident corporations wishing totake advantage of tax-free allowances must file atax return in the same way as Icelandiccorporations and file received dividends and capitalgains deductions against equivalent income.Prepaid withholding tax will thus be refunded afterthe final tax assessment in November the followingyear.

Capital gains and rental income from real estate issubject to a 20% income tax. This tax is notwithheld but levied during the final tax assessment.

The interest revenue of foreign parties is subject to10% withholding tax. The gross worth of therevenue is liable for tax and no tax-free allowance isavailable. The withholding tax is paid in full and therevenue has no further tax liability. It should benoted that the definition of interest revenue is verycomprehensive in Icelandic tax laws and coversinterest revenue from bank accounts, stock andinvestment funds, bonds and other claims andfinancial activities. The same applies to capitalgains from securities other than share holdings.

Income from rent, use, or utility rights of patents issubject to 20% withholding tax. This refers to grossworth of the income and no tax-free allowance isavailable. The withholding tax is paid in full and theincome has no further tax liability.

Withholding Tax CollectionWhen returning withholding tax on account oflimited tax liability, form RSK 5.41 must becompleted and returned to the Internal RevenueDirectorate.


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Value Added Tax - VATValue added tax, or VAT, was established in Icelandwith the Value Added Tax Act no. 50/1988 whichcame into force on 1 January 1990. VAT is anindirect consumption tax levied on all stages ofdomestic business transactions. VAT is levied on allgoods and services, as well as on the imports ofgoods and services, unless a specific exemptionapplies.

VAT – Tax RateThe general VAT rate is 24%.

The following goods and services are subject to areduced VAT rate of 11%:

Passenger transportation, which isn’tconsidered public transportation or serviceof taxies.

Rental of hotel and guest rooms and otheraccommodation.

Service of travel agencies when acting asintermediaries for sale or delivery of servicewhich falls under the reduced VAT rate oris exempt from VAT.

Subscription to radio and television. Newspapers, periodicals and magazines Books, both original and translated,

musical notation as well as their audiorecordings. Same applies to compact discsand other similar media as well aselectronic media.

Geothermal hot water, electricity and fueloils used for heating houses and swimmingpools.

Food and other consumables, includingalcohol, for human consumption asdetailed in an addendum to the ValueAdded Tax Act.

Access to roads and other transport relatedconstructions.

Compact discs, records, audiocassettes andother equivalent mediums for music onlyand not videos. Same applies toelectronically published music withoutvideo.

Condoms. Diapers (tariff nr. 9619.0091 and

9619.0011). Admission to spas, bathing facilities, sauna

and health springs which are not used forsport activity.

Guiding service.

VAT Taxable EntitiesBusinesses engaged in the trade of taxable goodsand services for business purposes must registerand collect VAT and submit it to the Treasury.

Services Exempt from VATThe Value Added Tax Act details certain servicesthat are exempt from the tax, such as healthcareservices, social services, the operation of schools,various education services, cultural activities,athletic activities, public transportation, postalservices, sale of real estate (not including the rentalof hotel and guest accommodation), rental of carworkshops, insurance activity, services of financialbanks as well as securities trading, lotteries andbetting pools, artistic activities, funeral services andall services of ministers of the church.

Those selling taxable goods and services for lessthan ISK 1,000,000 per 12 month period are alsoexempt from paying VAT.

Agents for Non-Resident PartiesNon-residents who are engaged in taxabletransactions in Iceland but are neither domicilednor have permanent residence in Iceland, mustappoint VAT agents with residence in Iceland toreport on their behalf. Both parties are liable for theVAT payments (responsible for ensuring remittanceof VAT).

If a non-resident does not appoint a VAT agent, thepurchaser of the services/goods can be responsiblefor paying the VAT, and in some cases the reversecharge principle can be applicable.

Tax BaseTax base is the price the buyer pays for goods orservices before VAT is added and before any costsor service expenses are deducted from the price.VAT is therefore added to the sales price.

Taxable but Zero-ratedTurnoverVAT is levied on all taxable turn-over. As per Article12 of the VAT Act, the following are zero-rated:

1. Export of goods and services. Output tax isneither levied on goods exported from thecountry nor on and services providedabroad. Service of a travel agencies areconsidered to be provided abroad regardingpassenger transportation abroad, includingto and fro Iceland, and service andproducts which the traveller utilizesabroad.


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2. Transport of goods and passengers betweencountries. The same applies to domestictransport of goods when the transport ispart of a contract for the transport of goodsbetween countries.

3. Production of goods at the expense of aforeign party when the productioncompany exports the goods uponcompletion, as well as the processing andformation of goods at the expense of aforeign party when the production takesplace abroad.

4. The design, planning and other comparableservices related to construction and otherreal property abroad.

5. Provisions, fuel, instruments and otherequipment delivered for use on board ofinter-country vessels, as well as the serviceprovided to such vessels. This exemptiondoes not cover fishing vessels selling theircatch abroad, pleasure boats or privateaircraft, only vessels used for the transportof freight.

6. The sale and leasing of aircraft and ships.This exemption does not cover boats lessthan six metres in length, pleasure boats orprivate aircraft.

7. Shipbuilding and repair and maintenancework on ships and aircraft and their fixedequipment, as well as materials and goodsused or provided by the company providingthe repair work. This exemption does notcover boats less than six metres in length,pleasure boats or private aircraft.

8. Contractual payments from the Treasuryrelated to the production of milk and sheepfarming.

9. Services provided to foreign fishing vesselsrelated to the landing or sale of fish catchesin Iceland.

10. A service of refunding VAT to partiesdomiciled abroad.

11. Sales of services to parties neitherdomiciled nor having a venue of operationsin Iceland, provided that the services arewholly used abroad. A taxable serviceprovided in connection with culturalactivity, arts, sports, education and othersimilar activity taking place in Iceland, andis tax-exempt is always deemed as beingused here. Sales of services to partiesneither domiciled nor having a venue ofoperation in Iceland is, in the samemanner, exempt from taxable turnover,even if the service is not wholly usedabroad, provided the purchaser could, if itsoperations were subject to registry inIceland, count the value added tax on thepurchase of the services as part of the input

tax. The following services fall under thispoint:

The sale or lease of copyright,patent rights, registeredtrademarks and copyrighteddesigns and the sale or lease ofother comparable rights.

Advertising services. Services of consultants, engineers,

lawyers, accountants and othersimilar specialized services as wellas data processing and delivery ofinformation, except for labour orservices related to liquid assets orreal property in Iceland.

Electronic services: these servicesare considered used where thebuyer is domiciled or having avenue of operations.

Obligations and duties related tobusiness or production activity orthe use of rights listed under thispoint.

Employment agency services. The rental of liquid assets, except

for means of transport. The services of agents acting on

behalf of others and for theiraccount with regards to the saleand delivery of services listed underthis point.

Telecommunications services.

VAT Accounting Periods andDue DatesVAT is filed and paid on a bi-monthly basis for thefollowing periods: January and February; Marchand April; May and June; July and August;September and October; November and December.The due date for payment of VAT is one month andfive days after the end of the settlement period. Forexample, the due date for the January and Februarypayments is 5 April.

If VAT is not paid on the due date, a 1% penaltycharge is added for every day up to a total of 10%.Late penalty interests also apply. Should the totalinput tax exceed the total output tax the Treasurywill refund the difference within fifteen days fromthe due date.

Those selling goods and services totalling less thanSK 3.000.000 during a full calendar year shallremit the VAT payments on a yearly basis. The duedate for filing and paying is 5 February each year.

Parties that do not file a VAT report within therequired deadline will have their VAT estimated.


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The tax authorities are allowed to deregister partiesoff the VAT register if they have had their VATestimated for two VAT period or longer.

If a VAT report is submitted after the taxauthorities have estimated VAT, a penalty of ISK5.000 is imposed for every VAT report which isfiled late.

VAT ReimbursementUnder the provisions of Regulation no. 288/1995,issued by the Ministry of Finance, foreignenterprises, which are neither domiciled in Icelandnor have a permanent establishment here, mayobtain reimbursement of VAT paid on goods andtaxable services which have been purchased orimported for the commercial purposes of suchenterprises in Iceland.

Such reimbursement can be effected to foreignenterprises that would be subject to registration inIceland if the enterprises in question were engagedin such business in Iceland. This means that suchenterprises as insurance companies, banks andother financial institutions cannot obtain suchreimbursement.

Another prerequisite shall be that the enterpriseshall have sold neither goods nor taxable services in

Iceland during the period to which the applicationrefers.

Any reimbursement of VAT to foreign enterprisesshall be only to the same extent as Icelandicenterprises can include the VAT on purchases of acorresponding nature in the tax on purchases.

No reimbursement shall thus be granted in respectto VAT on purchases relating to meals for theowners and employees of the enterprises or relatingto entertainment expenses and presents.

Parties domiciled abroad can get VATreimbursement on goods they have bought inIceland if they take them abroad with them withinthree months from the date of purchase. They thenmust provide the goods, along with any necessarydocuments, to the appropriate reimbursementcompany or to the customs authorities on the dateof departure and the purchase price must amountto at least ISK 6.000.

Entities, which have received permit fromDirectorate of Custom, take care of thesereimbursement. Directorate of Custom will handleany settlements with the reimbursement entity.


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3. Foreigners


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3. Foreigners in Iceland

VisasVisas are issued to individuals, for family visits,tourism, official and commercial business and tostudy, and are generally granted for three months.Visas do not entitle the holder to work in Iceland.

Citizens of EFTA and ESB member countries do notneed a visa when travelling to Iceland.Furthermore, bilateral agreements on theexemption of visas have been established withabout 100 countriesA complete list of the countriesthat have signed an agreement with Iceland on theexemption of visa requirements when travelling toIceland is available at the Icelandic Directorate ofImmigration, www.utl.is.

Live and Work in Iceland

Nordic CitizensNordic citizens need neither work nor residencepermit to live and work in the Nordic countries.

EEA CitizensCitizens of EEA member countries may stay andwork in Iceland without a permit for up to threemonths from their arrival in the country, or stay forup to six months if they are seeking employment. Ifthe individual resides longer in Iceland, he or shemust register his or her right to residency with theNational Registry.

Citizens outside the EEACitizens of countries outside the EEA, who want tostay in Iceland for more than three months or whowant to work in the country must apply forresidence and work permits. The application for thefirst permit must be approved before the applicantarrives in the country and the average applicationprocessing time is 90 days.

Residence and work permits are divided into thefollowing subdivisions:

Residence permit only Residence and work permits in connection

with labour shortages Temporary residence and work permits in

connection with employment for whichspecialist skills are required

Residence and work permits for athletes Residence and work permits in connection

with au pair engagements

Residence and work permits for students Relatives of citizens of EEA member

countries Residence permit in connection with family

reunions Permanent residence permits

There are various conditions for each individualpermit and it is important to complete theapplication carefully and make sure all documentsare present and in order. All documents that are notin English or in a Nordic language must betranslated by a certified translator. The originalcopy of the application and all documentation mustbe submitted. Criminal records, marriagecertificates, birth certificates and any othercertificate submitted with the application musthave an Apostle Certificate from the applicant’scountry of residence or double confirmation fromthe Ministry for Foreign Affairs in their country ofresidence.

Employment AgenciesAn employment agency is a service company thathires out workers to user companies for a fee. Theemployees are under the management of the usercompany. Employment agencies cannot charge afee from their employees for procuring a job forthem.

Only employment agencies that are domiciled inIceland, in another EEA member country or inSwitzerland, may operate in Iceland. Foreignemployment agencies must provide proof that theyare legally registered and that they have workpermits in their country of residence. Allemployment agencies must register their companyand all their employees with the Directorate ofLabour (www.vmst.is). Foreign employmentagencies operating for more than ten days per yearin Iceland must have an agent in Iceland.

Employees hired from employment agencies towork in Iceland are liable to pay tax on all incomeearned in Iceland.

If the employment agency is not located in Iceland,the local employer is treated as the wage payer andhas a duty to account for the payee in Iceland. Aswithholding agent, the local employer can be heldliable if withholding taxes are not filed and paidwhen due.


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4. Miscellaneous


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4. Miscellaneous

Company TypesIceland allows various types of companies tooperate but the most popular types of businessentities are limited liability companies, both publicand private. This type of company can be set up inone to four days with relatively few formalities.Prices for set up and registrations vary dependingon the type of company. The following paragraphsgive detailed information about the main types ofcompanies in Iceland.

Public Limited CompaniesThe minimum share capital required to establish apublic limited company is ISK 4.000.000. Aminimum of two shareholders is a requirement.The registration cost is ISK 256.000. Shareholdersare not personally liable for the company’scommitments.

Private Limited CompaniesThe minimum share capital required to establish aprivate limited company is ISK 500.000. Oneperson/legal entity can be the sole shareholder. Theregistration cost is ISK 130.500. Shareholders arenot personally liable for the company’scommitments.

CooperativesThere is no minimum contribution capital. Theremust be at least two associates. The registrationcost is ISK 89.000. All associates carry direct,undivided and unlimited liability for thecooperative’s commitments in solidum.

Limited PartnershipsThere is no minimum contribution capital. Theremust be at least two associates. The registrationcost is ISK 89.000. At least one partner must carrydirect, unlimited liability for the company, whilethe liability of other partners is determined as aratio of share contributions.

Foreign Currencies

Financial Statements /Accounting in ForeignCurrenciesCompanies can apply to the Registry of AnnualAccounts for an authorisation to keep their booksand prepare their annual accounts in a foreigncurrency. An application must be filed no later thantwo months before the beginning of the company’sfiscal year. The authorisation is valid for five yearsand the Registry of Annual Accounts is responsiblefor ensuring that the authorised companiescontinue to fulfil the necessary conditions, whichare (one or more of the following must be fulfilled):

The company’s main business operationstake place abroad or the company is a partof a foreign company group.

The company owns foreign subsidiaries orshares in foreign companies and its mainbusiness transactions are with thosecompanies.

The company’s main place of business isIceland, while a considerable number oftheir transactions are in foreign currencies.

A considerable portion of the company’sinvestments and related debts are inforeign currencies.

If the company deems that it no longer fulfils theconditions it must notify the Registry of AnnualAccounts. The Registry can postpone its decision ofthe authorisation’s discontinuance for two fiscalyears if the situation causing the fact that thecompany does not continue to fulfil the necessaryconditions is deemed to be temporary.

The average exchange rate for the fiscal year mustbe used when converting income and expenses,depreciations included, into ISK. The exchange rateat the end of the fiscal year must be used whenconverting assets, debts and capital. Exchange ratedifferences that may arise do not affect income onprofit and loss accounts.


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Double Taxation TreatiesTreaties concluded with other countries in order to avoid the double taxation of income incorporate variousclauses that allow for the exemption of income tax on income, which without such treaties would be taxablehere. The case can be that tax liability is transferred to the contracting country, as per Article 3 of the Act onIncome Tax, or that the income of tax liable corporations becomes subject to limited tax liability in Iceland, asper Article 1 of the Act.

Iceland has concluded double taxation treaties with the following countries / territories:

Barbados Germany Malta Slovenia

Belgium Greece Mexico South Korea

Canada Greenland Nordic Countries* Spain

China Hungary Poland Switzerland

Croatia India Portugal The Netherlands

Cyprus Italy Republic of Ireland Ukraine

Czech Republic Latvia Romania United Kingdom

Estonia Lithuania Russia USA

France Luxembourg Slovakia Vietnam

*Treaty between Finland, Norway, Sweden, Denmark, Faroe Islands and Iceland.

Agreements on the exchange of information with respect to taxes have been made with the following states:Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, British Virgin Islands,Cayman Islands, Cook Islands, Dominican Republic, Mauritius, Gibraltar, Grenada, Guernsey, Isle of Man,Jersey, Liberia, Liechtenstein, Macao, Marshall Islands, Monaco, Netherlands Antilles,Niue, Panama, SaintLucia, Samoa, San Marino, Seychelles, Turks- and Caicos Islands and Urugay.

Exemption from Tax Liability on Grounds of a Double TaxationTreatyTo apply for exemption from tax liability in Iceland on grounds of a double taxation treaty, form RSK 5.42 mustbe completed and returned to the Internal Revenue Directorate.

In cases where taxes have already been withheld in spite of grounds for exemption, an application under doubletaxation agreements for a refund of taxes paid in Iceland can be filed by completing and submitting applicationform RSK 5.43 to the Internal Revenue Directorate.


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Currency Gains and Losses inBusiness TransactionsExchange rate gains and losses are calculated on allassets and debts at the end of the year. Exchangerate gain is recorded as income while exchange rateloss is deductible from taxable income. Legalentities must distribute taxable exchange rate gainsand losses over three years, starting in the year thegains and losses in question arose.

Rules on Foreign ExchangeIn 2008, the Central Bank of Iceland issued newrules on foreign exchange in order to restrict ortemporarily prevent certain types of cross-bordercapital movements or foreign exchangetransactions related thereto, which, according tothe Central Bank of Iceland, can cause serious andconsiderable instabilities in exchange rates andfinancial matters. The rules have been reissued asamendment to the Foreign Exchange Act No.87/1992.

The Act on Foreign Exchange defines capitalmovements as:

1. The issue, sale or purchase of shares, debtinstruments, unit shares in mutual fundsand other long-term and short-termsecurities.

2. Deposits in and withdrawals from accountswith depository institutions.

3. Lending, borrowing and the issue ofsecurities not related to internationaltransactions with goods and services.

4. The import and export of share certificatesand domestic and foreign currencies.

5. Forward contracts, options, currency andinterest-rate swaps and other relatedforeign exchange transactions in which theISK is one of the denominated currencies.

6. Presents, grants or other transactionsequivalent to the ones detailed in items 1 –5 above.

Capital Movements of ForeignCurrenciesAll capital movements of foreign currenciesbetween countries are prohibited, with theexception of payments for the purchase of goodsand services or other capital movements specificallyexempt from the regulations, according to Act87/1992.

Capital Movements of DomesticCurrenciesCapital movements between countries in domesticcurrencies are also prohibited. There are severalexceptions to this rule.

Capital movements specifically exempt from theabove regulations are as follows:

Capital movements in relation to thepurchase or sale of goods and services (notincluding lending, borrowing and the issueof securities not related to internationaltransactions with goods and services) andpayments in cash or by withdrawals froman account the buyer has in an Icelandicdepositary institution.

Capital movements in relation to real estatepurchases in Iceland or businesstransactions with securities issued in thedomestic currency and payments bywithdrawals from an account the buyer hasin an Icelandic depositary institution.

Capital movements in relation to claimsfrom a liquidated company and paymentsof contractual debts according tocomposition agreements, according to Actno. 21/1991.

TemporaryReimbursements inRespect to Filmmaking inIcelandOn account of Act no. 43/1999 on TemporaryReimbursement in Respect to Filmmaking inIceland, it is possible to have 20% of productionexpenses incurred in the production of films ortelevision material in Iceland reimbursed. Whenmore than 80% of the total production cost of amotion picture or television programme is incurredin Iceland, the reimbursement shall be calculatedfrom the total production cost incurred within theEuropean Economic Area. Production costs refer toall costs incurred in Iceland deductible from therevenues of enterprises pursuant to the provisionsof the Act on Income Tax. Payments pertaining toemployees and contractors are only to be includedin production costs if they are verifiably taxable inIceland.

Application for reimbursement of production costsshall be submitted to the Ministry of Industry. Theapplication, with supporting documentation, shallbe submitted before production commences inIceland.


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In assessing whether a proportion of the productioncosts of a motion picture or television programmeshall be reimbursed, the following conditions mustbe fulfilled:

a. The production shall be suitable forpromoting Icelandic culture and thehistory and nature of Iceland.

b. The production shall be suitable forenhancing the experience, knowledge,and artistic ambition of the partiesinvolved. A specific companyshall be established in Iceland for theproduction; an Icelandic branch oragency of a company registered inanother member state of the EuropeanEconomic Area shall be considered aspecific company.

c. Information about the subject of theproduction or programme shall bemade available.

d. An itemised estimate of the productioncosts and sources of funding shall bemade available, together withconfirmation by the funding partiesand a declaration by the applicant to

the effect that the productionconforms to the aims of the Act.

e. Information about the content of theproposed production of a motionpicture or a television programmeshall be made available, such as ascript and information about filminglocations.

f. A statement shall be made available tothe effect that the material to beproduced is intended for generaldistribution to cinemas or televisionstations.

g. The subject matter of the film ortelevision programming should notviolate the provisions of law relating tofilm inspection and the ban on violentfilms, or the provisions of the GeneralPenal Code concerning pornography.

h. A confirmation that all taxes and debtsin Iceland have been paid.

Act no. 43/1999 on Temporary Reimbursements inRespect to Filmmaking in Iceland expires at yearend 2016.


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Tax authorities

Director of InternalRevenue

Phone/

Facsimile

Address Zip Code Email/Website

Reykjavík (Headquarters) P: 442 1000

F:442 1279

Laugavegi 166 150 Reykjavík [email protected]

www.rsk.is

Hella P: 442 1000

F: 442 1999

Vegskálum 1 850 Hellu [email protected]

www.rsk.is

Vestmannaeyjar P: 442 1000

F: 442 1999

Heiðarvegi 15 900 Vestmannaeyjar [email protected]

www.rsk.is

Egilsstaðir P: 442 1000

F: 442 1999

Skjólvangi 2 700 Egilsstaðir egilsstað[email protected]

www.rsk.is

Akureyri P: 442 1000

F: 442 1999

Hafnarstræti 95 600 Akureyri [email protected]

www.rsk.is

Siglufjörður P: 442 1000

F: 442 1999

Túngötu 3 580 Siglufjörður [email protected]

www.rsk.is

Ísafjörður P: 442 1000

F: 442 1999

Hafnarstræti 1-3 400 Ísafjörður [email protected]

www.rsk.is

Akranes P: 442 1000

F: 442 1999

Stillholt 16-18 300 Akranes [email protected]

www.rsk.is

Hafnarfjörður P: 442 1000

F: 442 1999

Suðurgötu 14 220 Hafnarfjörður [email protected]

www.rsk.is

Directorate of Customs P: 560 0300

F: 562 5826

Tryggvagötu 19 101 Reykjavík tollstjó[email protected]

www.tollur.is

Directorate of TaxInvestigations

P: 550 8800

F: 550 8850

Borgartúni 7 150 Reykjavík

www.skattrannsóknarstjori.is

State Internal RevenueBoard

S: 575 8700

F: 575 8729

Borgartúni 21 105 Reykjavík

www.yskn.is


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PwC offices

Reykjavík Selfoss

Skógarhlíð 12 Sigtún 3

105 Reykjavík 800 Selfoss

Tel: +354 550 5300 Tel: + 354 482 3434

Akureyri Húsavík

Glerárgata 30 Garðarsbraut 15

600 Akureyri 640 Húsavík

Tel: +354 460 2400 Tel: +354 464 1865


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PwC offices

Offices of PwC

Reykjavík:

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