Tax on interest, dividend and capital gains

We refer to our newsflash of July 23, concerning tax on interest paid to foreign investors in Iceland. As announced this will take effect 1st September 2009. As the law was passed in late June and the officials that were meant to carry it out have been on holiday more or less since, it is only now that answers to some practical questions have started to surface.

First of all, the tax of 15% will be withheld from all interest, dividend and capital gains, unless the beneficial owner of the investment has applied for and received exemption under double taxation treaties. Any previous exemptions from withholding will become void.

Tax on dividends, previously at 10% is now 15%. Some double taxation treaties allow for some withholding, for example 5% or 10%. If the beneficiary is a legal person residing within the EEA, they can file a tax return form the next year to get the withheld tax repaid.

Capital gains of foreign investors have until now not been taxed in Iceland. This will change as all capital gains will now be subject to 15% withholding, unless exemption has been granted.

A link to the form RSK 5.42 – Application under Double Taxation Conventions for an Exemption from Icelandic Taxation - can be found and filled in at the RSK website.  You will find a direct link here on the right.  Once filled in and signed it should be sent electronically via e-mail to rsk@rsk.is. You will find directions accompanying the form, but in addition to the directions we would like to highlight the following:

• Field 8: If you don’t already hold an Icelandic Identification number we will have to apply for one for you before you send in this form. Please contact us for further instructions.
• Field 10: Please check three boxes; Dividend payment, Interests and Sales profits
• Field 12: The double taxation treaties can be found through the link here on the right. The relevant articles would in most cases be number 10, 11 and 13, but we urge you to check that for yourselves.
• The RSK stress the importance of filling in all the fields. In particular will the form not be accepted without correctly filled in fields number 4, 9, 10 and 19.

There are still some questions to be answered and we appreciate your patience. In the coming days we will send you some further information, for example concerning capital gains and how they will be calculated, and the handling of omnibus accounts. But in order to get things rolling and to avoid the withholding of the wrong amount and the consequent need for reimbursement application, we urge you to get started with the form RSK 5.42 and to send it in as soon as possible.