Iceland tax system - taxation of Icelandic companies and individuals: VAT, income tax and capital gains. Tax treaties of Iceland.

Residents pay tax on worldwide income, non-residents pay tax on income from sources in Iceland.

Income tax is charged at progressive rates:

• Income up to ISK 4 042 995 is taxed at 20.6%;
• income from ISK 4 042 995 to ISK 11 350 472 is taxed at 22,75%;
• income over ISK 11 350 472 is taxed at 31,.8%.

In addition, a municipal tax is paid at a rate of 12,44% to 14,52%, depending on the municipality.

Capital gains tax is paid at a rate of 22%.

Income tax is paid by resident companies on their worldwide income, non-resident companies on income from sources in Iceland.

The corporate income tax rate is 20%.

Capital gains are subject to income tax. There are exemptions for profits from the sale of shares and dividend income. Interest income from bank deposits and certain other financial instruments is taxed at 22%.

Employers pay:

• Social Security contribution at the rate of 6,35% (other rates apply in some cases).
• Pension contribution at the rate of 11,5%.
• In addition, 2% is paid to private pension funds if the employee himself contributes 4% to them.
• 0,1% to the rehabilitation fund.

Employees pay:

• Pension contribution at 4%. In addition, 4% may be paid to mandatory or voluntary pension funds (this amount is tax deductible).
• Contribution to senior citizens' fund is paid in a fixed amount if a certain level of income is exceeded.

Financial institutions, including insurance companies, pay tax at a rate of 5,5% on payroll.

And an additional tax of 6% is paid if the total payroll exceeds ISK 1 000 000.

The standard rate of VAT is 24%.

A preferential VAT rate of 11% applies to some goods and services.

Tax is withheld at 20% when dividends are paid to a non-resident company and 22% to an individual.

Companies from EEA countries can then receive a tax refund.

When interest is paid, tax is withheld at a rate of 12%.

For royalties, tax is withheld at the rate of 20% for companies and 36,94% to 46,24% for individuals.

Tax may be withheld on certain other income payments.

An annual municipal tax is levied on real estate.

Inheritance tax is levied at a rate of 10%.

Non-taxable limits may apply.

No tax is levied on spouses.

Stamp Duty is levied on transactions involving real estate and ships.

The rate is 0,8% for individuals and 1,6% for businesses.

The CFC rules apply if one owns or controls, directly or indirectly, more than 50% of the shares in a company from a low-tax jurisdiction (less than 2/3 of the Icelandic tax rate).

The CFC rules do not apply if the company is located in a country with a double tax treaty with Iceland with an appropriate exchange of information article and its income is not predominantly financial income. In addition, the CFC rules do not apply to a company registered in an EEA country doing business there and the Icelandic tax authorities are able to obtain information about the company on the basis of the relevant agreement.

Iceland has signed 41 Double Tax Treaties (DTC) and 36 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:

41 DTCs: Albania, Barbados, Belgium, Bermuda, British Virgin Islands, Canada, China, Croatia, Cyprus, Czech Republic, Estonia, France, Germany, Greece, Greenland, Guernsey, Hungary, India, Ireland, Italy, Jersey, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Swiss, Ukraine, United Kingdom, USA, Vietnam.

36 TIEAs: Andorra, Anguilla, Antigua & Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, British Virgin Islands, Brunei, Cayman Islands, Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Hong Kong, Isle of Man, Jersey, Liberia, Liechtenstein, Macao, Marshall Islands, Mauritius, Monaco, Montserrat, Netherlands, Netherlands Antilles, Niue, Panama, Saint Lucia, Samoa, San Marino, Seychelles, Turks and Caicos Islands.

In addition, Iceland has signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for Iceland on January 1, 2020.

Currency controls were introduced in 2008 in connection with the banking crisis.

Currently, most restrictions have been lifted. Certain restrictions remain: in respect of international transfers in Icelandic krona, transactions in derivatives except for hedging transactions, currency exchange transactions without the participation of financial institutions.