MAJOR DEVELOPMENTS
Amendments to the personal income tax have been made to reduce the personal income tax rate to 40.88% effective May 1, 1997, to December 31, 1997, and to 37.98% in the income year 1999.
The proportion between state income tax and local income taxes has changed due to the transfer of schools from the state to the municipalities.
INCOME TAXES ON CORPORATIONS
1. Rates
The rate of income tax on corporations for 1997 is 33% on net income,41% for partnerships.
2. Local Income Taxes
None.
3. Capital Gains Taxes
Capital gains are added to other taxable income and taxed at the regular corporate rate.
4. Branch Profits Taxes
Branches of foreign corporations are taxed at the regular corporate rate.
5. Foreign Tax Reliefs
Double taxation relief is given for taxes paid by a resident of Iceland in those countries with which Iceland has double taxation treaties (see item 19). If a treaty does not exist, relief is given on the basis of domestic credit rules.
6. Classification of Corporations
There is no difference in tax rates based on classification of
corporations.
7. Payment of Taxes
All taxes are paid in the assessment year, which is the year after the year of operations. The taxes are due in ten payments on the first day of each month except January and July.
Until the tax has been calculated, which is usually no later than July 31 each year, a corporation must pay a proportion of the taxes levied in the previous year. This proportion is assessed annually in accordance with changes in the general price level (52.5% in 1997).
INCOME TAXES ON INDIVIDUALS
9. Rates
The state income tax rate calculated on personal income for 1997 is 29.31%, and the local income tax rate is 11.57%. Income tax is paid as income is earned and is withheld at source by the employer. A monthly tax deduction of ISK 23,901 is allowed (reduced from ISK 24,544 effective May 1 through December 31, 1997). A special 5% state income tax is calculated on an individual income that is in excess of ISK 2,805,840 (ISK 5,611,680 for a married couple). The 1997 tax rates for
resident individuals are:
Taxable Income
Tax on Percentage
Over Not Over Lower Amount on Excess
ISK 0 ISK 701,605 ISK 0 0%
701,605 2,805,840 0 40.88
2,805,840 860,211 45.88
Investment income earned by individuals, such as interest, dividends, and capital gains (see item 11), is subject only to a new investment income tax at the flat rate of 10%.
10. Local Income TaxesLocal municipal taxes are withheld at source along with state income taxes (see item 9). The taxes can vary between municipalities from 11.24% to 12.04%. The rate used to calculate withholding tax is 11.57%.
11. Capital Gains Taxes
Capital gains from the sale of homes are not taxed if the homes were owned and used by the owners for more than two years. Capital gains derived from the sale of shares are taxed at the rate of 10% on the part not exceeding a ceiling of ISK 3,000,000 (ISK 6,000,000 for a married couple) and at the regular income tax rate on the excess.
Individuals can postpone payment of the income tax on gains above the ceiling by purchasing other shares.
12. Foreign Tax Reliefs Double taxation relief is given either in accordance with tax treaties or on the basis of domestic credit rules.
13. Tax Period
The tax period for individuals is the calendar year.
INCOME TAXES ON NONRESIDENTS
15. Liability to Tax
Nonresident Individuals. Nonresident persons are subject to tax on income from Icelandic sources, including but not limited to salaries, wages, and pensions paid from Icelandic sources, and income derived from business carried on in Iceland and from real property.
According to domestic rules, individuals staying in Iceland for longer than 183 days are subject to tax on their worldwide income.
Individuals in Iceland for a temporary stay, i.e., less than 183 days, are taxed only on Icelandic-source income.
Tax rates and payment terms can vary depending on the type of income concerned.
Exemptions from the above rules can be provided in double taxation agreements.
Nonresident Companies. Nonresident companies and other entities are subject to ta
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