DT9453 - Iceland: Notes

The convention that entered into force in 2014 replaced the 1991 convention, which took effect in 1992. Apart from a general updating to reflect changes in the OECD Model Tax Convention and the domestic laws of both states, notable changes include:

Dividends (Article 10)

The 2013 Convention introduces an exemption from tax in Iceland in respect of dividends beneficially owned by UK pension schemes.

Royalties (Article 12)

The 2013 Convention introduces a withholding tax of 5% for certain royalty payments connected with franchise arrangements and copyrights of films etc. (see treaty summary).

Capital Gains (Article 13)

The 2013 Convention introduces provisions enabling Iceland to tax disposals of shares or other rights in a company in certain conditions where an individual assumes residence in the UK. The conditions are:

• they were a resident of Iceland for five years in the ten year period preceding the date upon which they became a resident of the UK
• the alienation takes place within three years of them becoming a resident of the UK
• on ceasing to be a resident of Iceland, they held shares or other rights that constituted at least 10% of the capital of the company

Pensions (Article 17)

From 1 January 2015, pensions (excluding government pensions) paid to a resident of the UK may be taxed in Iceland (see treaty summary). However, persons already in receipt of their pension as at 10 November 2014 can make an irrevocable election for the pension to continue to be taxable only in the UK under the provisions of Article 18 of the previous convention (SI 1981 No.2879).