Iceland’s Parliament Approves New Tax, Social Security Measures Affecting Individuals
Iceland’s parliament (Althingi) approved the Minister of Finance’s tax proposals on 29 June 2009, with Act No. 70/2009.
Below, we focus on the tax measures that concern individuals, including international executives.
Special High Income Tax
According to the law, there will be a temporary 8-percent tax on individuals with income in excess of ISK 4,200,000 from 1 July 2009 to 31 December 2009, supplementing the regular top income tax rate (average 37.2 percent).
Individuals who are married or taxed jointly as co-habitants would not be jointly subject to the special high income tax. This measure is to apply from 1 July to 31 December 2009.
Individual Income Tax – Investment Income
Investment Income (category C income) – if in excess of ISK 250,000 from 1 July to the 31 December 2009, the tax rate applied is temporarily increased from 10 percent to 15 percent. In the case of individuals who are married or taxed jointly as co-habitants and there is investment income, it is taxed in the hands of the partner with the highest total employment income (Category A). In that case, the income in excess of ISK 500,000 will be taxed at 15 percent.
However 70 percent of rental income is to be taxed at 15 percent. The other 30 percent of the rental income will not be subject to tax.
The withholding tax/assessment period for investment income will be three months – instead of annual – with the date of maturity being the 20th day after the end of each withholding tax/assessment period and the deadline date for tax due is 15 days later.
From 1 July 2009, all persons will have to pay income tax on interest unless there is a valid double taxation treaty that would preclude such taxation. Before the law change, only persons that were Icelandic tax residents had to pay income tax on interest in Iceland.
The withholding tax on interest to persons with limited tax liability in Iceland should be paid monthly, with the date of maturity being the 1st day after the end of each month and the deadline date for tax due is 14 days later.
Social Security Contribution
The employee’s social security contribution rate was increased to 7 percent from 5.34 percent. However, if the employee has a foreign E-101 certificate, the social security contributions are increased from 0.407 percent to 0.507 percent. The changes took effect on 1 July 2009.
Source: KPMG
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