Interests
General information
Non-resident companies are liable to income tax on interests received from Icelandic bank accounts, investment and security funds, Icelandic bonds and all other financial claims. The withholding tax is deducted from the interest payment itself when the interests are paid or transferred.
Interest income tax rate is 12%.
Interests paid to foreign states, international organizations and other official/public entities that are exempt from tax in their residence country are exempt.
Interests from all bonds are liable for tax unless the issuer of the bonds/securities is the Central Bank of Iceland. The Directorate points out that bonds/securities issued by the Central Bank of Iceland on behalf of some other party e.g. the Treasury are not exempt.
International aspects that might affect tax rate
Iceland has concluded several agreements on tax matters with other countries. Parties with a permanent residence, with full and unlimited tax liability in either one of the contracting countries may be entitled to exemption from taxation or reduced tax rate according to provisions of the respective agreement, in absence of which the income would otherwise be subject to double taxation. Each agreement is different, and it is therefore necessary to check the respective agreement to ascertain where the tax liability lies, and which taxes the convention stipulates. Provisions of tax agreements with other countries may restrict Iceland's right to tax.
Effective Double Taxation Agreements (DTA) can be viewed here.
Interest income tax rates based on DTA between Iceland and foreign states
NOTE: Exemption from taxation or reduced tax rate in Iceland according to agreements in force can only been achieved by filing an application for exemption/reduction on form RSK 5.42 to the Director of Internal Revenue. Until the application has been approved and confirmed one has to pay taxes in Iceland, based on national legislation.
Tax rate
List of effective double taxation agreement between Iceland and other states regarding interest tax rate
| Countries | Agreement Date | Interest tax rate |
|---|---|---|
| Albania | 1/1/2017 | 10% |
| Austria (AT) | 1/1/2017 | 0% |
| Belgium (BE) | 1/1/2004 | 10% |
| Canada (CA) | 1/1/1998 | 10% |
| Croatia (HR) | 1/1/2012 | 10% |
| China (CN) | 1/1/1998 | 10% |
| Cyprus (CY) | 1/1/2015 | 0% |
| Czech Republic (CZ) | 1/1/2001 | 0% |
| Denmark (DK) | 1/1/1998 | 0% |
| Estonia (EE) | 1/1/1996 | 10% |
| Faroe Islands (FO) | 1/1/1998 | 0% |
| Finland (FI) | 1/1/1998 | 0% |
| France (FR) | 1/7/1992 | 0% |
| Georgia | 1/1/2016 | 5% |
| Germany (DE) | 1/1/1974 | 0% |
| Greece (GR) | 1/1/2009 | 8% |
| Greenland (GL) | 1/1/2003 | 0% |
| Hungary (HU) | 1/1/2007 | 0% |
| India (IN) | 1/1/2008 | 10% |
| Ireland (IE) | 1/1/2005 | 0% |
| Italy (IT) | 1/1/2009 | 0% |
| Latvia (LV) | 1/1/1996 | 10% |
| Lichtenstein | 1/1/2017 | 0% |
| Lithuania (LT) | 1/1/2000 | 10% |
| Luxembourg (LU) | 1/1/2002 | 0% |
| Malta (MT) | 1/1/2007 | 0% |
| Mexico (MX) | 1/1/2009 | 10% |
| Netherlands (NL) | 1/1/1999 | 0% |
| Norway (NO) | 1/1/1998 | 0% |
| Poland (PL) | 1/1/2000 | 10% |
| Portugal (PT) | 1/1/2003 | 10% |
| Romania (RO) | 1/1/2009 | 3% |
| Russia (RU) | 1/1/2004 | 0% |
| Slovakia (SK) | 1/1/2004 | 0% |
| South Korea (KR) | 1/1/2009 | 10% |
| Spain (ES) | 1/1/2003 | 5% |
| Sweden (SE) | 1/1/1998 | 0% |
| Switzerland (CH) | 1/1/1990 | 0% |
| Ukraine (UA) | 1/1/2009 | 10% |
| United Kingdom (UK) | 1/1/1992 | 0% |
| United States (US) | 1/1/2009 | 0% |
| Vietnam (VN) | 1/1/2003 | 10% |
Double Tax Agreements are in process with these countries
| Countries | Status |
|---|---|
| Bulgaria (BG) | discussion |
| Slovenia (SI) | signed draft |
