Iceland tax: iceland Tax changes approved

Iceland's Parliament approved a series of proposed tax changes on 29 June 2009, including an increase in the tax on investment income and social security rates, the introduction of taxation on foreign loan interest and a special high-income tax and an increase in the VAT rate on certain food. The proposal to enhance the powers of the tax authorities was not approved. Key changes include the following:
- The tax rate on investment income of individuals is increased from 10% to 15% for the period 1 July to 31 December 2009 with respect to income exceeding ISK 125,000 for each three-month period (July-September and October-December). Therefore, investment income exceeding ISK 250,000 between 1 July and 31 December is taxed at 15%. The assessment period for tax purposes is three months rather than annually, with tax due 15 days after the end of each assessment period.
- The social security contribution rate is increased from 5.34% to 7%.
- Parties with limited tax liability in Iceland are taxed on interest income derived from bank deposits, UCITS and investment funds, bonds or other financial instruments in Iceland. No tax is imposed, however, on interest paid by the central bank, interest paid to foreign countries, international organizations or other government entities that are exempt from tax in their home country or where a tax treaty between Iceland and the country where the recipient is resident provides that interest income will not be taxed.
- Between 1 July and 31 December 2009, an 8% tax is levied on income exceeding ISK 700,000 per month in addition to the regular income tax (currently 37.2%). Married or jointly taxed cohabitants are not taxed together for purposes of the high-income tax.
- The VAT rate on certain food (i.e. mostly food containing high levels of sugar) is increased from the reduced rate of 7% to the general VAT rate of 24.5%. The new rules are effective as from 1 July 2009, except the rules on the taxation of interest derived by foreign parties, which is effective as from 1 September 2009.