“Explore the tax implications of doing business with Iceland, a country with a stable democracy and a thriving economy. Understand the tax brackets, benefits for foreign experts, and the process for importing and exporting goods. Learn about Iceland’s tax equality policy and penalties for non-compliance. Discover the potential for Indian businesses in this emerging market and how to navigate tax regulations for successful ventures.”
In a recent discussion with professionals, I met a leading expert on Iceland who does regular business with the importers of the glorious country. India exports nearly USD 12 Million dollars while importing around USD 2 Million in the year 2021. It has enormous scope for export of experts from India in all fields. Thinking outside the box, why not we look at their tax rules and learn more to expand our business? This country ranks among the best while treating all genders as equal and expect them to produce the best. Yes, they offer paternity and maternity leave.
With USD 25 Billion as GDP, Iceland has the following details about its economy.
“Iceland is a stable democracy with an active consumer economy. The pillars of the Icelandic economy are aluminum smelting, fishing, and tourism. Iceland’s main material exports are aluminum products and fish products, and main service exports are tourism related services. In 2017, tourism accounted for 42% of total exports of goods and services, while marine products were 17% of total exports, aluminum products another 17%, and manufacturing products other than aluminum accounted for 6%. Main material imports to Iceland in 2017 were industrial supplies 27%, capital goods (except for transport) 21%, transport equipment 19%, fuels and lubricants 12%, consumer goods 13%, and food and beverages 8%.” From export.gov, a government web site of USA.
USA maintains its position as the number one trading nation with Iceland. It takes care of its defense and I understand that being one of the safest countries in the world, their men/women do not lock the doors of their houses due to virtual zero theft.
Now to their tax information from their government web site
https://www.skatturinn.is/english/individuals/tax-brackets/2023
I shall quote extensively from above web site and add my observations wherever needed.
Tax brackets 2023
The withholding tax of individuals salaries has three tax brackets which leads to believe that those who receive payments from more than one employer would make arrangements to ensure that the correct tax percentage is withdrawn from their salary.
The withholding tax is as follows:
|
Tax bracket |
Income | Percentage |
| Tax bracket 1 | Income from 0 – 409,986 ISK | 31.45% |
| Tax bracket 2 | Income from 409,987 – 1,151,012 ISK | 37.95% |
| Tax bracket 3 | Income exceeding 1,151,012 kr. | 46.25% |
| To quote from their website. |
“If the monthly salary with one employer goes above 409,986 ISK, the withholding tax at the next employer should be calculated in the next tax bracket above. If the monthly salary is more than 1,040,106 ISK per month the part that exceeds that threshold must be calculated in tax bracket three at 46.25%.”
Let me take one of their examples for better proper erudition.
A specialist with high income, an obvious choice for a small nation with the best medical facility.
“Dóra works full time as a doctor at a hospital. Her monthly salary is 1,500,000 per month. Dóra also takes shifts at a health clinic.
What does Dóra need to do?
- As her salary at the hospital exceeds the limit for tax brackets one and two a part of her withholding tax is calculated in tax bracket three. All of Dóras personal tax credit is used at the hospital.
- Dóra makes sure that the health clinic calculates her salary in tax bracket three and cannot use any of her personal tax credit.
| Employer | Amount | Tax bracket | Personal tax credit |
| Hospital | 1,500,000 kr. | Tax bracket 1, 2 and 3 | All the tax credit is used |
| Health clinic | 500,000 kr. | Tax bracket 3 | No personal tax credit |
How much is one kr with USD?
One 136.75 ISK = One USD. (Icelandic krona, ISK – Íslensk króna in Icelandic.)
Who is a foreign expert?
Iceland revenue and customs web site contains details of foreign expert and how to apply to become one.
Do You know that———
An employee is a foreign expert if the following conditions are met:
- The employee has not resided or held a legal domicile in this country for the next 60 continuous months prior to when he/she began working in this country, although the first three months of his/her stay in this country are not included.
- The employee’s area of expertise is limited or non-existent in Iceland. With the best competition from EU and USA, the foreign experts enjoy enormous respect and also good salary, not only from one employer but from more, if legally approved.
- Interesting tit bit from taxation angle which I have never seen in any of the other countries who engage foreign experts, with kid gloves.
Special rules apply to the taxation on remuneration to foreign experts that come to Iceland for work. The legislation, which came into effect January 1st 2017, stipulates that only 75% of the income is taxed for the first three years from the start of employment provided certain conditions are met.
Since experts get a good salary beginning, it is a great tax saving. We shall discuss this at the end of this article.
A special committee appointed by the Ministry of Finance and Economic Affairs evaluates whether the conditions are met.
Once an application has been approved, tax is withheld from 75 percent of the income. Calculations for Social security tax, contributions to pension funds, child benefits and private housing interest subsidy are based on total income.
Applicants may apply for a correction on tax withheld before the approval of application by filling out form RSK 5.17 after the application has been approved.
What about joint tax filing?
What is the tax year and more facts on filing of tax returns?
Tax return is as under.
https://www.skatturinn.is/media/rsk01/rsk_0113.en.pdf
(Intended for individuals living in Iceland for less than three years. On back page, one can see explanations and directions. To be noted that couples and those with dependent children must fill RSK 1.01 The same applies to owners of real estate, securities, shares and self- employed individuals)
Let us learn its basic structure and other special features, if any.
Spread on two pages, the return has the following heads.
1. Salary and other employment related payments
2. Car allowance. Per diem payments, fringe benefits
3. Other income
4. Deductions
5. Tax base for income tax
6. Tax withheld at source
7. Status/balance in savings and other accounts
Notices and comments can be sent(give email address)
Please state foreign Tax Identification Number here. i.e., identification number used for filing a tax return in your home country.
If you intend to leave the country, before the tax assessment takes place, please state your address abroad (or your representative in Iceland)
Your address abroad (or your representative in Iceland)
Instructions to fill out all the columns given on page 2.
Tax returns can be filed with wife, or one with whom the tax payer cohabits.
Some more deductions information.
Deductions In 162 state deductible premiums to a pension fund max 4% of income stated in 21. Additional payments into voluntary pension funds shall be stated under 160.
Please note that the total deduction sums from 162 and 160 may not exceed 8% of total salary. Deduction of car allowance according to RSK 3.04, shall be listed under 32. Deduction of per diem payments according to RSK 3.11, shall be listed under 33.
Now about business.
What does a business men/women look forward from Iceland?
Obviously, imports and exports.
Importing to Iceland
The general rule is that import charges are to be paid when importing goods to the country in accordance with the customs tariff that has legal validity in Iceland. Included in the import charges are duties, excise duties and value added tax as well as various other charges that may be added when a good is imported.
In addition to the exceptions listed below, these are also worth mentioning:
Imports for embassies, matters related to Vienna convention matters or military power of U.S.A. are free from import duty restrictions.
Proper documentation, procedures for imports and the norms laid down at ports are given in the website of the government. One may refer them which are simple, elementary in procedure without any hindrance.
I could see a list of nearly 124 exporters names in the website. I expect many from India in near future.
Let us learn certain systemized information on export of fish and other connected items from the country.
The website of SKATTURIN, the official website contains the following information for guidance.
Export
Exports are carried out with the customs authorities in such a way that the exporter submits an export report, form E-2, together with supporting documents at the export customs office. If the exporter has access to an electronic customs clearance system, he can request customs processing during export via SMT or VEF customs clearance. The customs processing is then carried out by sending messages between computers.
Following information in details are also available.
- Export report
- Export license
- Sea food license number.
The above details narrate the procedure for export purposes.
Registration of real owners
With money laundering showing its ugly head every where, registration of real owners of entities must be informed.
If they have not been informed earlier in national register, it should be done within two weeks of registration.
Some more interesting information is very useful.
New registration
In the case of new registrations, information about the real owners must be reported using form RSK 17.27 and the form must be attached to the company’s founding documents to the company register. Those legal entities that are already registered in the company register the details of actual owners by entering their service area at skattur.is .
All commercial companies established as of August 30, 2019 have submitted information about the real owners.
Companies subject to registration are themselves responsible for obtaining information about their real owners, and the Swedish Tax Administration’s company register cannot provide specific advice in that regard. If there is any doubt as to who is considered the real owner of a company subject to registration, advice should be sought from an external professional, such as a lawyer, certified public accountant or audit firm.
Inquiries related to the registration of beneficial owners can be sent to the e-mail address vidturinn@skatturinn.is.
Definitions of types of ownership
According to the law on the registration of beneficial owners, the type of ownership must be specified when the beneficial owner is registered. Below you can see the definitions of the types of ownership specified in item 4. Article 3 Act on Registration of Beneficial Owners no. 82/2019.
Direct ownership of shares
Indirect Direct ownership of share capital
Direct alternative ownership
Implicit other forms of ownership
Direct voting weight
Indirect voting weight
Direct and indirect decision-making power
Direct and indirect control
Direct management
Indirect management
Appointment of directors
What are the penalties for non- performance of above instructions
Penalties
There are certain penalties for failing to provide information about beneficial owners, information being false or misleading, or breaching data retention regulations. The following discussion examines the sanctions applied in those circumstances.
Some of the measures include day fines, administrative fines, authorization for deregistration and liquidation of a person subject to registration, and time-limit for legal action.
All taxes and fees from their web site are as under:
Import duties, alcohol tax, inheritance tax, vehicle tax, liquor license inspection fee, supervisory fee for Financial supervisory authority, inspection fees for radiation protection, VAT refund, capital gains tax, financial administration tax, cash register of RSK, National register fees, accommodation tax, customs payment deadline KA/TA, land charges, various external claims (7 of them), salary deduction, payers in arrears, administrative fines, excise duties, insurance fee, customs processing fee.
Let us learn organization chart of tax and tax equality policy.
Directly transplanted from their website.
“Organization chart of tax
The structure of the Tax provides for five core areas, which are assessment areas, monitoring and investigation areas, collection and records areas, customs enforcement areas and service and information areas. There are also five supporting areas of the organization, i.e., finance department, human resources department, tax office, technology department and development department. “
Tax equality policy
Main policy
The main policy of the tax is to establish and maintain equality and equal opportunities for all staff within the office, regardless of gender, in accordance with 6.-7. art. and 12.-14. art. Act no. 150/2020 on equal status and equal rights of the sexes.
The equality policy covers all activities and all employees of the office and is published on the Tax website.
It is highly enlightening that a noble nation like Iceland has got equal pay for all genders, equal opportunity for growth, same working opportunities to learn and gain in promotional opportunities, and equal representation in Boards to supervise the implementation of the policies. Sexual harassment or bulling are taken seriously and investigated properly.
The Director of Taxation is responsible for the equality policy, while the Director of Human Resources ensures that the policy is implemented.
The equality policy is revised at least every three years and the effectiveness is evaluated at the annual management review meetings on the equal pay system.
Conclusion
Taking an outside box thinking, to achieve USD 7 Trillion for Indian economy is possible when we increase our export of services/goods as well as import of the same from all countries like Iceland, a paradise on earth. From USD 11 Millions of exports, we must strive to reach USD 100 Million while making efforts enormously imports from minimal USD 1 Million to minimum USD 50 Million since the competition to enter their clean atmosphere is a pleasure both physically and of course, by business sense too. We must strive to have many of Indian export units from there to cater to EU. Services like IT, medicine, supply of pharmaceuticals, other than those we are already established are essential areas for growth. Like our fisher folk, Iceland is full of history with seafarers and offers huge export opportunities to those who want to go there with expertise and increase the efficiency of doing. Sea related items carry a premium Also our tourism industries must introduce Iceland to our tourists who languish for pure air, natural wonders and unbelievable experience in winter.
This article tries to break our mentality to only learn what we have learnt already. New areas like Iceland are the gateways for prosperity both for India and Iceland. I want youngsters/professionals to take the first steps to go there and prosper.
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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
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