International tax summaries--ICELAND（1998）
International tax summaries--ICELAND（1998）
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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
The rate of income tax on corporations for 1997 is 33% on net income,41% for partnerships.
2. Local Income Taxes
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
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
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:
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 tax at the normal rates on their income from Icelandic sources, subject to relief under a double taxation treaty. They are taxed in conformity with the rules applicable to companies domiciled in Iceland on income derived from business activities or participation in business activities with a permanent establishment in Iceland.
17. Withholding Tax Rates
Withholding tax on payments to nonresidents are 20% on dividends paid to companies and 10% on dividends paid to individuals, 40.88% on royalty payments to individuals and 33% on royalty payments to companies and other entities. There is no withholding tax in Iceland on interest payments to nonresidents.
19. Tax Treaties
Iceland has concluded double taxation treaties with the following countries:
To Parent Others Interest Royalties
Nontreaty countries 20% 20% 0% (2)
China 0 15 0 0
Denmark 0 15 0 0
Estonia 0 15 0 0
Faroe Islands 0 15 0 0
Finland 0 15 0 0
France 5 15 0 0
Germany 5 15 0 0
Latvia 0 15 0 0
Norway 0 15 0 0
Sweden 0 15 0 0
Switzerland 5 15 0 0
United Kingdom 5 15 0 0
United States 5 15 0 0
(1) The nontreaty rate for dividends paid to nonresident
individuals is 10%. The parent company must own directly at least 25% of the share capital in the company that pays the dividend. The treaties with the United Kingdom and the United States provide a 10% or more ownership requirement.
On the part of the dividends allowed as a deduction from income of the Icelandic corporation (7% of the nominal value of the share capital), the rate is 15% instead of 5%. This does not apply to the United States.
(2) The rate is 33% in the case of payments to legal entities and 40.88% to individuals.
OTHER SIGNIFICANT TAXES
21. Sales (Value-Added) Taxes
A 24.5% value-added tax is levied on any sale of goods, power, or services with various exceptions including the following:
q All export sales;
q Public health-care services;
q Schools and other educational institutions;
q Domestic and international passenger transportation and cargo
transport between Iceland and foreign countries;
q Postal services;
q House rentals and sales and rentals of trade aircraft and vessels;
q Insurance services;
q Banking and the operation of other finanCIAl institutions and sales of bonds;
q Services to foreign entities if the services are rendered outside Iceland.
A 14% value-added tax is levied on the sale of the following goods and services:
q The sale of certain foods and other goods for human
q Room rates for hotels and other accommodations;
q License fees for television and radio stations;
q Books in Icelandic, magazines and papers;
q Hot water, electricity, and fuel oil used for domestic and commerCIAl heating.
All corporations, individuals, and state and municipal entities that sell or grant any kind of taxable goods or services in Iceland are assessable.
The regular VAT assessment period is two months, and the tax is due within 35 days from the end of each period.
VAT must be paid with custom duties when goods are imported.
22. Inheritance and Gift Taxes
The donee is taxed for gifts on the same basis as normal income.
Inheritances are taxed as follows:
Relationship to Decedent Rate
Next of kin up to 10%
Parents and children up to 25
Others up to 45
23. Taxes on Payrolls (SoCIAl Security)
Employers pay an insurance contribution that is assessed on all
salaries and wages on a monthly basis. It also is calculated on taxable benefits in-kind, such as a company car and housing. This tax includes a contribution to the Icelandic National Insurance Scheme, as well as a contribution to the unemployment fund. There presently are two rates, as follows:
q 3.88% for the fishing industry, farming industry, tourism, software development, film industry, hotels, restaurants, and car rentals;
q 6.28% for all other activities.
The legislation regarding this fee has been changed, and it will gradually even out to become one rate for all types of businesses, i.e., 5.03% in 1999.
25. Other Taxes
Industrial Loan Fund Contribution. This is assessed on all industrial activities carried on by individuals, corporations, and other taxable entities. The contribution rate is 0.14% on all operating income.
Industrial Fee. This is assessed on the same industrial activities as are subject to the industrial loan fund contribution. The rate is 0.08%.
Market Charge. This charge is levied on all business activities, at the rate of 0.015% on gross operating income.
Property Tax. Land and property tax at nominal rates is paid to the municipal authorities; the rates vary between municipalities and also in regard to use. The principal taxes and rates are those on property, water use, fire insurance, and disaster insurance.
Capital (Net Worth) Taxes. Capital taxes are computed on net capital. Regular capital tax rates are:
Amount in Excess of Rate
Individuals ISK 3,651,749 1.2%
Married couples 7,303,498 1.2
Corporations 0 1.2
Additional capital tax is calculated as follows (the tax base is the same as for the capital tax):
Amount in Excess of Rate
Individuals ISK 5,277,058 0.25%
Amount in Excess of Rate
Married couples 10,554,116 0.25
Corporations 0 0.25
Persons who have reached the age of 67 in 1997 and recipients of invalidity pensions do not pay the additional capital tax.
Special Property Tax. In some municipalities, owners of commercial buildings must pay a tax of 1.25%, maximum, assessed on the offiCIAl value of buildings and land. The rate will gradually decrease and be abolished in 1999.
COMPUTATION OF TAXABLE INCOME
26. Capital Gains
For corporations, capital gains on the sale of assets are treated as ordinary taxable income. See item 11 for the basic rules applicable to individuals.
27. DepreCIAtion and Depletion
Annual depreCIAtion is calculated as a percentage of the revalued acquisition cost.
Ships and aircraft 5.0% 10.0%
Industrial machinery and equipment 5.0 15.0
Office equipment 10.0 20.0
Machinery and equipment for building and construction, automobiles, other transport conveyances, and other movable property not included above 10.0 20.0
Building as defined by the Income Tax Act 1.0 6.0
Allowances for buildings and other structures are defined by the tax legislation, for example office buildings 1?%, industrial plants and storage tanks 3?%, quays 6?%, and for holes and electric transmission lines 7.5?0%.
Accelerated depreCIAtion is allowed when a fixed asset is sold at a taxable profit and when the inflation adjustment in item 33 (4) exceeds that of item 33 (3).
28. Treatment of Dividends
A resident limited liability company is entitled to deduct from taxable income dividends paid to shareholders up to a maximum of 7% of the share nominal value. The dividend is deductible in the year of operations it refers to.
If a resident company that is a shareholder in another company receives dividends from the latter, the dividends are taxed as regular income. The deduction rule in the first paragraph is to diminish the effect of this double taxation. A 10% investment tax is withheld at source and is considered a prepayment for income tax payable after assessment.
An individual shareholder who is resident in Iceland and who receives dividends, pays a 10% investment income tax that is withheld at source by the company paying the dividends. The tax liability of a nonresident shareholder depends on whether the shareholder is treaty-protected. If no tax treaty applies, the domestic tax rules apply.
29. Loss Carryovers
Operating loss carryforwards are adjusted annually for the effects of inflation by applying the inflation rate, and such losses may be carried forward to the succeeding eight years. Carrybacks are not permitted.
30. Transactions Between Related Parties
The tax authorities may substitute fair market value for such
31. Consolidation of Income
Each entity is taxed separately.
32. Tax Periods
The calendar year is mandatory for all taxpayers, but on application, a corporate taxpayer may be granted a different fiscal year if speCIAl reasons exist.
33. Other Matters
Accounting for Inflation for Corporations?Tax Purposes. The In