Corporate Taxes in Iceland
Every year a lot of entrepreneurs establish their businesses in Iceland. However, when an entrepreneur establishes a business, the entrepreneur has to register with the tax authorities and consider the corporate tax rate in Iceland that has to be incurred by the organization if they conduct business operations in the nation.
Businesses must pay a 20% corporate tax rate in Iceland on yearly revenues. An international firm’s branch must pay the Iceland corporate tax rate of 20% on all revenue. If Iceland and the nation where the entrepreneur resides have a double tax agreement, an Icelandic firm may request to be exempted from corporate income taxes. In Iceland, except if the corporation selects an independent taxpayer, corporate income tax returns must be submitted annually on or by May 31.
This article will discuss corporate taxes in Iceland. Additionally, it will describe the Iceland corporate tax rate that residents as well as overseas firms are liable to pay.
Various corporate taxes in Iceland
If you establish a corporation in Iceland, you must pay various business taxes in Iceland. Non-resident companies must pay Iceland corporate taxes only on revenue from an Icelandic source. A resident business must pay corporate taxes in Iceland on its global revenue. This section of the article will describe the numerous business taxes in Iceland that firms are liable to pay.
1. Corporate Income Tax (CIT)
One of the business taxes in Iceland is the corporate income tax. Corporations that are residents pay the corporate taxes in Iceland on their global revenue, less operating expenditures. All of the expenditures and costs required to generate, secure, and sustain revenue are included in deductible operational expenses.
Limited liability corporations (LLCs) and limited partnership businesses must pay the Iceland corporate taxes at a rate of 20%. Various other corporate organizations (such as partnerships) are subject to CIT at a rate of 37.6%.
Non-resident organizations that receive revenues for goods or services rendered in Iceland, in addition to those that operate permanent establishments there or earn from them, are liable to pay Iceland Corporate taxes for their revenue at the equal rate that is applied to resident companies.
2. Value-added Tax(VAT)
A consumption tax known as VAT is another one of the business taxes in Iceland that is imposed at every level of domestic commercial operations. Unless certain exclusions are applicable, VAT is charged on all exported and imported products and services.
The standard rate of VAT is 24%. Certain products and services, such as the leasing of accommodation and guest rooms, transportation services, publications, journals, and newsletters, are entitled to a lower VAT rate of 11%.
3. Property Tax
Iceland imposes a municipal property tax every year on the estimated worth of the real estate.
4. Stamp Duty
Stamp duty is another one of the corporate taxes in Iceland. Documentation pertaining to a transfer in property investment and land possession is subject to stamp duty. Whenever the transfer of ownership is connected to a merger or split of a corporation, stamp duty is nevertheless, not relevant. Based on whether the lawful proprietor is a person or a corporate organization, the stamp duty rate ranges between 0.8% and 1.6%.
The stamp duty is assessed on the formally recognized worth of the properties and territory when deeds and purchase contracts for real estate and land are issued. No stamp tax is applied to any other documentation.
5. Inheritance Tax
The rate of inheritance tax is 10%. There might be non-taxable limitations.
6. Social security contributions
Social security contributions must be made by employers. The average percentage is 6.35%. For fishermen, there is an extra rate of 0.65% social security contribution. For taxpayers who have turned in an A1 form, the social security contribution is 0.425%.
7. Financial Activities Tax (FAT)
All wage distributions provided by financial firms, particularly insurance firms, are subject to a 5.5% corporate tax rate in Iceland. Monthly tax collections are made. On overall wage payments that exceed ISK 1 billion, an extra Iceland corporate tax rate of 6% is assessed and recovered. The same organizations that are liable for the general FAT also pay this tax.
Withholding taxes in Iceland
A residential firm’s dividends are liable to a 22% withholding tax. A 20% WHT is applied to dividends made to a non-resident firm. The ultimate dividend tax given to an EEA-based corporation is zero because withholding taxes will be repaid the year after the dividend payment on submitting a tax return.
Interest payments made to resident businesses are liable to 22% withholding taxes, while payments made to non-resident businesses are liable to 12% withholding taxes.
Gross royalties given to a non-resident are subject to withholding and are taxed at the usual Iceland corporate tax rate of 20%.
CFC rules in Iceland
If a person either directly or indirectly possesses or manages over 50% of the stock in a firm with a lower tax nation, which is less than 2/3 of the corporate tax rate in Iceland, then they are subject to the CFC regulations.
If a corporation is established in a nation that has a double taxation avoidance agreement with Iceland and has a suitable information exchange agreement, and if the corporation’s revenue is not primarily financial revenue, the CFC regulations do not apply.
A corporation established in an EEA nation that conducts its operations there is also exempt from the CFC regulations, and the Icelandic tax authorities have access to details about the corporation due to the corresponding agreements.
Individual taxes in Iceland
Individuals who live in Iceland are entirely liable for paying taxes on their global earnings. Non-residents who are visiting Iceland temporarily and earn money through employment while there, are required to pay national income tax on that money. They are equally liable for paying municipal income tax as citizens are.
Capital income tax
A person’s capital income is taxed at a rate of 22%. After being made publicly accessible, contributions paid to authors by rightholder’s organizations will be taxed at a rate of 22% beginning on January 1, 2020. People having a low tax obligation will no longer be obliged to withhold tax from capital gains made on the sale of stock as of July 1, 2020.
Pension fund contributions
A pension fund must receive contributions from every worker and employer between the ages of 16 and 70. The required minimum payment is 15.5% of all salaries and wages paid to workers and self-employed people. Contributions of 4% of the worker are subtracted from their taxable revenue.
Employees may pay more than the required minimum and may exclude up to a maximum of 4% from their taxable revenue as long as the extra money is utilized to strengthen their pension entitlements. This extra payment can be made to a personal pension fund.
The inheritance tax rate is 10%. The first ISK 5,255,000 of inheritance is exempt from inheritance tax. If the inheritance is distributed before death, a flat 10% tax is applied to the entire sum without the need for a minimum threshold.
All workers in Iceland are required to pay local and provincial income taxes. Residents must also pay a special fee to the Icelandic National Broadcasting Service and donations to the Construction Fund for the Elderly.
Although residents can ask for credits for payments made to other nations or territories, they are subject to worldwide income tax. Only revenue with an Icelandic source is taxable for non-residents.
For more queries regarding corporate taxes in Iceland, you can reach our experts at Odint Consultancy. Our experts will guide you about the corporate tax rate in Iceland and help you acquire further information.
The standard rate of corporate income tax in Iceland is 20%.
The typical VAT percentage is 24%. A special VAT rate of 11% is in effect for some products and services.
In Iceland, except if the corporation selects an independent taxpayer, corporate income tax returns must be submitted annually on or by May 31.
Yes, corporations engaged in research & development can take advantage of tax incentives.
On dividends, interest, and royalties, a standard rate of 20% withholding tax is applied.