ICELAND

Iceland – an island of 103.000 square kilometers, located midway between North America and Europe. The Iceland is the parliamentary democratic republic. The capital is Reykjavik. GDP per capita was 30.265 USD in 1998. The population – 275,277. Iceland has frequent scheduled flights between Iceland and major American and European cities every day. Iceland is located about 3 hours by air from major cities in Western Europe and 5-6 hours from the east cost of the USA. The currency – Iceland krone, ISK (1 USD = 84 ISK on January of 2001). Long-term credit rates – Aa3 (Moody’s), A+ (Standard and Poor’s). Short-term credit rates – P+ (Moody’s), A1+ (Standard and Poor’s).

1.	Advantages	· Law taxation · Political and economical stability · Through it’s membership in the European Economic Area (EEA) Iceland participates in the single market of the European Union and it’s business laws nave been adapted to the EU’s business legislation. · Icelandic law provides for a flexible labor market and no limitation on capital movements. · Banking system is based on European laws and regulations.
2.	Disadvantages	· Ready-made companies are not available · Information about beneficial owner is not confidential
3.	Corporate law	· Act 138/1994 for Private Limited Liability Companies · Act 2/1995 for Public Limited Liability Companies · Act 31/1999 for International Trading companies
4.	International cooperation	EEA, EFTA, OECD, GATT, NATO
5.	Company form	International Trading Companies – ITC
6.	Permitted activities	Any activities permitted by law
7.	Prohibited activities	· Trading in or exporting goods, services or valuables originating in Iceland · Trading in goods other than seafood products and some agricultural products · Processing of goods, which changes their country of origin · Holding of shares in Icelandic enterprises
8.	Taxation	· Income tax – 5 % · Net worth tax – 0 % · Stamp duties – 0 % ü Dividends paid by resident companies to resident and non-resident shareholders are subject to withholding tax. The rate is 10 % to all the individuals and resident companies. The rate for non-resident corporate shareholders 20 %. However, according to the Icelandic double taxation treaties this rate can be decreased (see “Double taxation treaties”) ü VAT 24.5% (for some categories of goods – 14 %)
9.	Terms of formation	1 day for company formation + 2-3 weeks to obtain the ITC licence
10.	Ready-made companies available	No
11.	Name of a company	A name that is similar to or identical to existing company. A well-known name that is known to exist elsewhere. The name of the company can be expressed in any language using the Latin alphabet. The registrar may request an Icelandic translation to ensure that the proposed name does not contravene name restrictions. Names requiring consent or a licence: Bank, savings, loans, insurance, assurance, reinsurance, fund management, investment fund, trust, trustees, chamber of commerce, municipal or their foreign language equivalents or any name in English or a foreign language that may suggest association with the banking or insurance industries Suffixes to denote limited liability: ehf. – private limited company hf. – public limited company
12.	The documents required to obtain the licence	· An application to obtain licence · A certificate of formation, the Minutes of the first meeting, shareholders registry, Articles of organization · The names, Ids and addresses of beneficial owners, directors, main shareholders, other executives · A business plan · A declaration of the legal and financial competence of interest holders of the company · Certificates from the State Penal Register concerning interest holders of the company · An official certificate confirming registration and operations in cases where a founder is a legal entity · A declaration stating that the applicant has acquainted himself with legal requirements and that the Licensing Committee is free to seek further information about the persons concerned. No application for an operating licence will be processed until the required documents have been submitted. Applicants may submit with their applications additional documents, which they consider may facilitate the Licensing Committee reaching a decision on the application. The Licensing Committee may require further documents from the applicant if this is deemed necessary.
13.	Share capital	Share capital in amount of 500,000 ISK (5953 USD) should be fully paid
14.	Shares	Ordinary shares, preference shares, deferred shares, redeemable shares, shares with or without voting rights. Bearer shares are not permitted.
15.	Shareholders - minimum number	One. In case number of shareholders is more than one, then at least one must be an Icelandic resident or a resident of the European Economic area or from an OECD country. Founders from other countries must get special permission from the Ministry of Commerce
16.	Confidentiality provided by law: - about beneficial owner	No
17.	Directors - Minimum number - residence Secretary	One director is required if shareholders are fewer than three. If shareholders are four or more, three directors are minimum Directors must be natural persons. Majority of directors must have permanent residence in Iceland or an OECD country. Not required
18.	Must have in Iceland - registered office - registered agent	Yes No
19.	Annual meetings of shareholders/directors	· Shareholders’ annual meetings required. Held in Iceland; exempt if otherwise allowed in bylaws · No restrictions concerning the place of meeting, but it is often recommended for international tax purposes to have hold meetings in Iceland.
20.	Requirements to - accounting - annual report - audit	Yes Yes Yes
21.	Information disclosure	Subscribers, incorporation documents
22.	Currency control	No
23.	Annual fee (from the second year)	1200 USD ( for ITC Operating Licence)

ITC AND DANISH HOLDING COMPANIES

Icelanding company is used as intermediary trading company in tax planning. Registration of Icelandic company as subsidiary of Danish holding company (see “Danish holding companies”) allows decrease withholding tax. The practical use is shown on the following chart:

Corporate shareholder (France, Hong Kong, USA, Japan, etc.)		Ü	Danish WHT – 0%
At least 25 % ownership, one year	¯
Denmark Intermediary holding company		Þ	Ý Icelandic WHT – 0 %
At least 25 % ownership, one year	¯
Iceland International Trading Company		Þ	Ý Income tax 5 %

Icelandic International trading Company can perform the following activities:

Legal services, General and Credit Management, Financial Control And Accounting, Royalties & Franchising,

Marketing & Sales, Consulting

Tax rates according to the Icelandic Double taxation treaties

Country	Dividends			Royalties (%)		Interest (%)
	Individuals companies (%)	Qualifying companies (%)
Canada	15	5	(a)	0/10	(b)	0	(e)
China	15	5	(c)	10		0	(e)
Denmark *	15	0	(a)	0		0
Estonia	15	5	(c)	5/10	(d)	0	(e)
Faroe islands *	15	0	(a)	0		0
Finland *	15	0	(a)	0		0
France	15	5	(a)	0		0
Germany	15	5	(c)	0		0
Latvia	15	5	(c)	5/10	(d)	0	(e)
Netherlands	15	0	(a)	0		0
Norway *	15	0	(a)	0		0
Sweden *	15	0	(a)	0		0
Switzerland	15	5	(c)	0		0
United Kingdom	15	5	(a)	0		0
USA	15	5	(a)	0		0
Non-treaty countries **	20	20		30/38/38,5	(f)	0

(a) – this rate applies to corporate shareholders with a minimum ownership of 10 %.

(b) – the zero rate applies to copyright royalties (except films, etc.), and to royalties for computer software or patent, or for information concerning industrial, commercial or scientific experience (except information provided in connection with a rental or franchise agreement).

(c) - this rate applies to corporate shareholders with a minimum ownership 25 %.

(d) - the 5 % rate applies to royalties paid for the use of industrial, commercial or scientific equipment

(e) – according to Icelandic tax legislation interest paid to non-residents is not taxed. However, according to the Double Taxation Conventions concluded between Iceland and Canada, Iceland and China, Iceland and Estonia and Iceland and Latvia, the source state has the right to levy a 10 % tax on interest.

(f) – the 30 % rate applies to corporations, the 38 % rate applies to partnerships registered as taxable entities and the 38,5 % rate applies to individuals.

* - Nordic convention – Double taxation convention between Finland, Norway, Sweden, Denmark, Faroe islands, Iceland.

** - treaties have been signed with Luxembourg, Belgium, Czech Republic, Portugal and Russia. These treaties are expected to be ratified in the nearest future.

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