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ADVICE #64

Pecularities of the tax system in Iceland

Despite the fact that almost all European countries are committed to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company "Texart Group researched the tax system 38 European countries with developed market economies, and weak, still "wobbly" after the collapse of the socialist states.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most States, a United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax "at the source"; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

Until the early 2000s, the economy of Iceland was supported by fishing and seafood export Council. Over the last decade, the country is rapidly developing industry, due to cheap energy based on geothermal sources). In addition, actively developing tourism. After the crisis of 2008 Iceland was able (to year 2012) to reduce the level of inflation and unemployment.

Iceland is a candidate member of the European Union.

The income tax

Income tax levied on the profits of resident companies, regardless of geographic origin of profit. Non-residents are taxed in respect of income from sources in Iceland.

Under a tax resident means a company registered in Iceland, if its place of effective management is located in Iceland or in the constituent documents of the company stated that it is a resident of Iceland. Income from capital gains subject to income tax in a general manner. The tax rate on profits is 20%.

Provide tax relief in relation to income arising from the forgiveness of debt: during the last five years, in some cases, companies received incentives (50% to 75%) in respect of the profits resulting from the forgiveness of debts, if you could prove that the debt obligation were carried out in connection with entrepreneurial activity.

Withholding tax

Tax at source shall be subject to the payment of dividends and interest to the resident companies at a rate of 20%. Dividends paid to nonresidents are taxed at 18% (or as specified in SODNOM, if available). Interest payments to non-residents is taxed at 10%, with the exception of interest paid by the Central Bank of Iceland or foreign government or other public organizations. Royalties paid to nonresidents are taxed at the rate of 20%.

VAT

VAT is paid at all levels of the supply of goods / rendering of services. The tax rate is 25.5%, except for products and other commodities, electricity and hotel services to which you apply the rate of 7%. Are zero-rated medical services, environmentally friendly vehicles, insurance and financial services, are exempt exports.

Taxation of incomes of physical persons

Tax residents have unlimited tax liability in respect of the calculation and payment of tax, i.e. subject to taxation income regardless of the country of origin.

A natural person resident for the purposes of taxation on income is a person living in Iceland for 6 months or more, wherein, if the resident who left Iceland, do not provide evidence of residency in another jurisdiction, it remains a tax resident with unlimited liability in the understanding of the legislation of Iceland for 3 years. If the person receives more than 75% of income in Iceland is a resident of the jurisdiction of the European economic area, then upon request of such person, the tax authority of Iceland may assign it the status of a resident.

Taxable income is divided into three categories: category "A" includes salaries, pensions, social benefits, grants, and royalties; the category of "B" includes income from business activity; the category "other" includes dividends, interest and other investment income and investment.

For persons engaged in entrepreneurial activity, the tax base is the sum of income across all categories.

Persons not engaged in entrepreneurial activities, applying the General rate in respect of the amount of income by category "A" and "B", and the income category "C" are taxed separately at the rate of 20%.

The tax rate is calculated on a progressive scale: income up to 3 480 000 Icelandic kronur (ISK, ~22 800 €) is taxed at 22.86%, revenues in the range of from 3 480 000 to 9 415 428 ISK (~61 500 €) are taxed at a rate of 25.3%, and income over 9 415 428 ISK (~61 500 €) are taxed at the rate of 31.8%. In addition, the income of physical persons are also subject to municipal tax, whose rate can vary in the range from 12.44%to 14.52% respectively.

Dividends and interest of physical persons-residents are taxed at source at the rate of 20%. Dividends and royalties to non-residents is taxed at 20%, interest payments at the rate of 10%.

Both residents and non-residents are required to pay municipal tax on income at the rate of 14.4% (rate may vary).

The real estate tax of individuals

Property tax in Iceland is local: the order and contouring rates are determined by the municipal authorities. The taxpayer, in addition to residents, are also non-residents owning real estate in Iceland.

The text prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

Исландия

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