Ákvarðandi bréf 2/2025 (English version)
Value Added Tax – Cruise ships on domestic voyages
Disclaimer: The following is an informal translation of the original opinion as written in Icelandic. In case of any discrepancies between the translation and the original text, the original prevails.
The Commissioner of Revenue and Customs would like to draw attention to the provisions of Act no. 50/1988, on Value Added Tax, regarding the value added tax liability of operators of cruise ships in respect of their activities during domestic voyages in Iceland.
i. Cruise ships on domestic voyages
A cruise ship on domestic voyages refers to a cruise ship that embarks passengers in Iceland, carries them between ports in Iceland (generally around the country), and subsequently disembarks them again in Iceland, without calling at a foreign port.
It should be noted that if a cruise ship on an international voyage carries passengers from abroad who disembark in Iceland, and other passengers embark for travel solely within Icelandic jurisdiction, that part of the voyage shall be regarded as a domestic voyage.
Accordingly, a cruise ship shall be regarded as being on an international voyage if passengers arrive on the vessel from abroad and depart abroad again on the same vessel on the same voyage, as well as if passengers arrive in Iceland on the cruise ship and other passengers depart abroad on the same cruise ship. Please note that this opinion does not address the operations of cruise ship operators on such voyages.
ii. Scope of value added tax, tax rates, taxable persons, and registration obligations.
A value added tax shall be paid to the State Treasury on all domestic transactions at all levels, as well as on importation of goods and services, as stipulated in Act no. 50/1988, cf. Article 1 thereof. The scope of value added tax is broadly defined in Article 2. According to Article 2, Paragraph 1, value added tax liability extends to all goods and valuables, whether new or used. Paragraph 2 stipulates that value added tax liability extends to all labour and services, regardless of name, cf. however Paragraph 3, which lists exhaustively the goods and services that are exempt from value added tax.
Any party who sells or delivers goods or valuables on a professional or independent basis or performs taxable labour or services, cf. Article 3, Paragraph 1, Point 1, of Act no. 50/1988 is obliged to collect and remit value added tax to the State Treasury.
Value added tax liability is not limited to entities domiciled in Iceland or that have a permanent establishment in Iceland. Thus, Article 3, Paragraph 1, Point 6, of Act no. 50/1988 stipulates that value added tax liability extends to and other parties representing foreign parties engaged in taxable transactions in Iceland.
Any person subject to tax according to Article 3, cf. Article 4, of Act no. 50/1988 shall, at their own initiative and no later than eight days before their business activity begins, report their business activities or operations to Iceland Revenue and Customs for registration, cf. Article 5, Paragraph 1, of Act no. 50/1988, cf. also Chapter I of Regulation no. 515/1996, on the Registration of Parties Subject To Value Added Tax.
If the operator does not have permanent establishment in Iceland, they must appoint an agent domiciled in Iceland to act on their behalf with regards to value added tax, including notifying Iceland Revenue and Customs of their activity, collecting value added tax on taxable services, and remitting the tax to the State Treasury. The agent can either be an individual or a legal person, and their registration as such in the value added tax register is independent and separate from any registration relating to their own business activities. The agent and the foreign operator are liable in solidum for the payment of value added tax due from the foreign operator.
According to Article 11, Paragraph 1, of Act no. 50/1988, the taxable turnover of a registered entity includes all sales or deliveries of goods and valuables against payment, as well as sold labour and services. For each settlement period, cf. Article 24 of the Act, taxable turnover shall mean the total tax price of all goods delivered, as well as all taxable labour and services rendered during the period, cf. Article 13, Paragraph 1, of the Act.
The general rate of value added tax is 24%, cf. Article 14, Paragraph 1, of Act no. 50/1988. However, Article 14, Paragraph 2, of the Act stipulated that specific goods and services are subject to a reduced value added tax rate of 11%. These include, inter alia, passenger transport, accommodation services, and the sale of foodstuffs and other goods for human consumption, cf. Article 14, Paragraph 2, Points 1, 2 and 8.
Upon registration, taxable persons obtain the right to deduct the value added tax levied on purchases of taxable goods and services for use in their business activities, i.e. input tax, as well as value added tax on imports, cf. Articles 15 and 16 of Act no. 50/1988.
iii. Activities of cruise ship operators on domestic voyages
The activities of cruise ship operators on domestic voyages are subject to value added tax according to Article 2 of Act no. 50/1988. Their activities consist, inter alia, of passenger transport, accommodation services, and the sale of food and beverages. In addition, it is common on such voyages to offer various other taxable services onboard, including, for example, spa services, beauty treatments, and travel related leisure services of various kinds, all of which are taxable under Article 2, Paragraph 2, of Act no. 50/1988. Furthermore, the sale of any goods onboard such voyages within Icelandic jurisdiction is taxable under Paragraph 1 of the same Article.
Value added tax liability also extends to cases where cruise ship operators resell travel related services, such as day tours or other taxable services, to their passengers when the ship is in port.
iv. Conclusion
Based on the aforesaid, operators of cruise ships on domestic voyages are required to register their activities in the value added tax register, provided that the conditions for registration are met, cf. Article 5, Paragraph 5, of Act no. 50/1988. They are then required to collect and remit value added tax on their sales of goods and services delivered in Iceland. In return, the operator obtains the right to deduct value added tax on inputs used in their taxable activities, cf. Articles 15 and 16 of Act no. 50/1988.
If the operator of a cruise ship on domestic voyages is a foreign entity that does not have a permanent establishment in Iceland, they must register by means of an agent. In such cases, registration on the value added tax register is made in the name of the agent on behalf of the foreign entity, and they are liable in solidum for value added tax reporting and remittance.
Registration on the value added tax register is obtained by submitting an electronic application through the online service portal of Iceland Revenue and Customs. In the case of registration of a foreign entity through an agent, form RSK 5.02 must however be used. It is sufficient to send a scanned copy of the completed form to skatturinn@skatturinn.is but a copy of the agency agreement must accompany the form. Where retroactive registration is required, value added tax returns, on form RSK 10.01, must also be submitted for all past due settlement periods from the initial date of registration.
