Royalties, lease etc.
According to Article 3(6) of the Income Tax Law, non-resident individuals and companies bear a limited tax liability in Iceland for royalties paid from Icelandic sources for leasing, property rights or utilisation rights from movables, patents and all types of rights or specialised knowledge. Gains from sales of such goods fall within the scope of the Article.
Taxable property rights that fall here under are all types of intellectual property, literature, arts and artworks. Below are some examples, the list is not exhaustive;
- Literature and arts including composed language in speech and writing, stage play, musical compositions, visual arts, architecture, cinema, photography, commercial art and other corresponding types of arts, irrespective of how or in what kind of form the work is published. Computer programs are also included here.
- Income derived from the right to show films in cinemas or on television and radio broadcasts of music or entertainment events, as well as the duplication of videotapes, compact discs or other media is liable to tax.
- Rights to use all types of computer programs, irrespective of whether for oneself or for duplication. Payments for the use of plans and maps, drawings, sketches and models are also liable for tax.
An entity that bears limited tax liability in Iceland is subject to taxation on income derived from the use of patents or other such rights, such as for the production of specific goods or the sale of goods under specific trademark, their use in business or the use of a formula or production method.
Payments to a foreign entity for, e.g., the use of computerised bookkeeping systems or collection systems stored abroad are subject to taxation in Iceland.
Payments for the lease and usage of specialised knowledge or right to use it are also subject to taxation in Iceland. A specialised knowledge refers to access to data or information of a specialised nature. In general, data or information covers what has been compiled by specialists, such as engineers, technicians, architects, lawyers, chartered accountants, computer specialists or other specialists serving the general labour market, who have a university degree or comparable long-term schooling or are verifiable employed in the area of the aforementioned parties or provide comparable service. The form of the data/information is of no importance.
There are no social security contributions levied on income subject to taxation under Article 3(6) of The Income Tax Law and there is no obligation to pay a part of such income to a pension fund.
Tax rates
| Income tax | Municipal tax | Total tax | |
|---|---|---|---|
| Earnings of individuals | 20% | 14,44% | 34,44% |
| Earnings of companies with unlimited liability | 20% | No | 20% |
| Earnings of companies with limited liability | 20% | No | 20% |
| Income tax | Municipal tax | Total tax | |
|---|---|---|---|
| Earnings of individuals | 20% | 14,44% | 34,44% |
| Earnings of companies with unlimited liability | 20% | No | 20% |
| Earnings of companies with limited liability | 20% | No | 20% |
| Income tax | Municipal tax | Total tax | |
|---|---|---|---|
| Earnings of individuals | 20% | 14,44% | 34,44% |
| Earnings of companies with unlimited liability | 20% | No | 20% |
| Earnings of companies with limited liability | 20% | No | 20% |
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 agreement stipulates. Provisions of tax agreements with other countries may restrict Iceland's right to tax.
Effective Double Taxation Agreements (DTA) can be viewed here.
Royalties, Leasing etc. tax rates based on DTA between Iceland and foreign states
NOTE: Exemption or reduction from taxation in Iceland according to agreements in force can only been achieved by filing an application for exemption or 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.
