Income taxes for non-residents

13. Tax Liability


Non-resident Individuals.

Non-resident persons are subject to tax on income from Icelandic sources, including but not limited to salaries, wages, and pensions paid by Icelandic sources, income derived from business carried out in Iceland, and from real property.

According to domestic rules, individuals staying in Iceland for longer than 183 days out of a 12 month period are subject to tax on their worldwide income. Individuals staying in Iceland on a temporary basis, 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.

Exemptions from the above rules can be provided in double taxation agreements.

Non-resident Companies.

Non-resident companies and other entities are subject to tax on their income from Icelandic sources at the regular corporate rate, 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.

14. Withholding Tax Rates

Withholding tax rates on payments to non-residents are as follows: 10% on dividends paid to companies and 15% on dividends paid to individuals, 37,2% on royalty payments to individuals, 15% on royalty payments to limited liability companies and 23,5% to Partnerships. 

Interest income received by foreign Limited Liability companies is subject to 15% withholding tax and 23,5% for Partnerships. Interest received by foreign individuals is subject to 15% withholding tax.

15. Tax Treaties

Iceland has concluded double taxation treaties with the countries listed in the table below showing treaty withholding rates.

The following table outlines the rules applicable to payments from an Icelandic company to foreign corporations:

  Dividends 1)      
  To parent Others Interest Royalties
  % % % %
Non treaty countries 10 10 15/23,5 15/23,5
Treaty countries        
Belgium 5 15 2) 0
Canada 5 15 2) 0
Czech Republic 5 15 0 0
China 5 10 2) 10
Denmark 0 15 0 0
Estonia 5 15 2) 5-10
Faeroe Islands 0 15 0 0
Finland 0 15 0 0
France 5 15 0 0
Germany 5 15 0 0
Greenland 5 15 0 15
Ireland 5 15 0 10
Latvia 5 15 2) 5-10
Lithuania 5 15 2) 5-10
Luxembourg 5 15 0 0
The Netherlands 0 15 0 0
Norway 0 15 0 0
Poland 5 15 2) 10
Portugal 5 15 2) 10
Russia 5 15 0 0
The Slovak Republic 5 10 0 10
Spain 5 15 2) 5
Sweden 0 15 0 0
Switzerland 5 15 0 0
United Kingdom 5 15 0 0
United States 5 15 0 0
Vietnam 10 15 2) 10
Malta 5 15 2) 5
Hungary 5 10 2) 10

Notes:

  1. The non-treaty rate for dividends paid to non-resident individuals is 15%.
  2. Until recently interest income received by foreign entities was not subject to taxation in Iceland. However, according to recent amendments to the Income Tax Act (29 June 2009) all foreign entities, receiving interest income from Iceland are currently subject to limited tax liability according to Article 3(8) of Act No. 90/2003 on Income Tax.The definition of interest income according to the Act includes income deriving from bank deposits, mutual- and investment funds, bonds or other financial deeds. Interest received by foreign entities is subject to withholding tax at the rate of 15% for limited liability companies and 23,5% for partnerships, limited partnerships and legal entities other than limited liability companies (funds, bancruptcy estates etc.) The withholding tax rate is 15% for foreign individuals.
  3. The tax rate is 15% for payments to corporations and 23,5% to partnerships registered as taxable entities. The rate is 37,2% when paid to individuals.