Value Added Tax
In Iceland
3 March 2011
1
VAT Act no. 50/1988
• Entered into force 1 January 1990
• Replaced sales tax system
2
Scope (article 1 and 2)
• VAT is levied on all transactions in Iceland at all
stages, as well as of import of goods and services
except where specific exemptions apply
• Covers all goods and valuables, new and used,
except where specific exemptions apply
3
Scope - exemptions (article 2(3))
- without the right to deduct
• Medical services
• Social services
• Educational services
• Cultural activity
• Athletic activity
• Passenger transportation
• Postal services
• The rental of real property
4
Scope - exemptions (article 2(3))
– without the right to decduct
• Insurance activity
• Bank services
• Lottery and betting pools
• Authors and musical composers
• Travel agencies
• Funeral services and ministers of church
• Charity activity
5
Taxable persons (article 3)
• Any person/entrepreneurs acting independently carrying on a trade or business
• Co-operative societies as well as other societies
and institutions
• Public energy and distribution enterprises
• The government, municipalities and their
institutions and enterprises when in competition
with commercial undertakings
• Auctioneers
• Agents
6
Exempted persons from paying VAT
(article 4)
• Persons selling exempted goods/services
• Artists selling certain work of art
• Persons selling taxable goods/services for less
than 1.000.000 ISK a year
• School cafeterias
7
Registration (article 5 to 6)
• Every taxable person is obliged to register
• Joint registration
• Optional registration
• Special registration
8
Taxable amount (article 7)
• Basis for calculation of VAT upon the sale of
goods and valuables, taxable labour services
• Refers to total remuneration or total sales value
before VAT
9
Taxable amount (article 7)
• Includes inter alia:
• Other taxes and duties
• Packing, carriage, insurance and other such
expenses
• Discounts
• Price increases incurred upon the time of
delivery of a good or service
• Service charges that is not included in the
price of the good
10
The arms length principle
(article 8 to 9)
• Exchanging of goods and services without
remuneration shall be based on market price
• Shall also apply to taxable constructions
• Related parties
11
Used vehicles
(article 10)
• Tax price is the difference between the sales
price and the purchase price
12
Taxable turnover (article 11)
• Includes all sales or deliveries of goods and
valuables against payment, as well as sold labour
and services
• Covers values of goods and taxable services
• for private use
• other purpose
• Includes sale by handling or agent basis
• Includes sale and delivery of machinery,
instruments and other operations equipment
13
Exemptions (article 12)
- with the right to deduct
• Exportation of goods and services provided
abroad
• Transportation of goods between countries
• Work performed by an enterprice on goods at
the expense of a foreign party
• Design and planning on construction abroad
• Provisions, fuel and equipment delivered for
use on board of inter-country vessels
14
Exemptions (article 12)
- with the right to deduct
• The sale and leasing of aircrafts and ships
• Shipbuilding and maintenance work on ships
and aircrafts
• Contractual payments from the Treasury for
milk and sheep farming
• Service provided to a foreign fishing vessel
related to the landing and sale of fishcatch in
Iceland
15
Exemptions (article 12)
- with the right to deduct
• Sale of certain service to foreign enterprises
neither domiciled nor with a permanent
establishment in Iceland:
• Endorsement of a copyright, patent,
registered trademarks
• Advertising services
• Services of consultants, lawyers, public
accountants, engineers etc.
• Electronically supplied service; mixed
service to data centres (from May 1st 2011)
16
Exemptions (article 12)
- with the right to deduct
• Obligations related to business- or
production activity
• Job consulting
• Rental of movable properties except for
means of transport
• Service of agents that assists with sale of
service which are exempt from VAT in
accordance with this article
• Telecommunication services
17
The accounting for taxable turnover
(article 13)
• Is the total taxable amount of all goods and
services delivered
• Time of supply
• Returned goods
• Bad debts
• Discounts
18
Tax rate (article 14)
• Standard rate is 25,5%
• Reduced rate is 7%
•
•
•
•
•
Rental of hotel and guestrooms
Radio and TV broadcasting
Sales of magazines and newspapers
Sales of books and recorded books
Sales of hot water, electricity and oil for house heating
and swimming pool
• Food other than wine and alcoholic beverages
• Road tolls
• CD ´s, records, magnetic tapes and other similar music
recordings
19
Accounting for VAT (article 15)
• Pay the difference between output tax and
input tax for each accounting period
• If input tax exceeds output tax the difference is
refunded
20
Deductions (article 16)
• Input tax shall include the VAT of items
purchased for operations, goods, labour, services
and other inputs related to the sale
• Adjustment rule
21
Deductions not allowed for:
(article 16)
• Operation of canteens and employee cafeterias
• Acquisition or operations of housing
accommodation for owner or staff
• Remuneration in kind to owner or employees
• Acquisition and operations of vacation homes,
summer cottages, children nurseries and similar
for owner and staff
• Entertainment costs and gifts
• Acquisition and operations and rental of
passenger cars and coaches
22
Accounting arrangements
(article 17 to 19)
• Accounts recorded in such a manner that the
VAT can be verified
• Separate accounts for taxable and tax-exempt
activities
• Sale is taxable unless demonstrated otherwise
• Keep accounts according to the Accounting Act.
No 145/1994
• Kept for 7 years
23
Accounting arrangements invoices (article 20 to 23)
• Issue an invoice at every sale
• Shall include a date of issue, the name and
registration number of the purchaser and
seller, the registry number of the seller,
type of sale, quantity, unit price and total
price
• State clearly the amount of the VAT
• Mixed transactions
• Tax exempt enterprises
• Specified VAT on invoices shall returned to
the Treasury
24
Settlement periods, due dates
(article 24)
• Settlement period is two months
• Turnover 3.000.000 ISK a year, longer period
• Due date 1 month and 5th day after the end of the tax
period
• Periodic returns
• Electronic returns
• Special rules concerning the fishing industry (art. 49)
• Special rules concerning agriculture (art. 30 to 33)
25
Determination of the VAT
(article 25)
• Processing
• Refunds
• Refund takes place within 21 days from the due
date
• Offset
26
Procedure (article 26)
• Faults
• Estimation
• Information of changes
• Notify the taxable person
• Decision within 2 months
• Tax evasion informed to the Director of Tax
Investigation
27
VAT not paid on time (article 27)
• Surcharge, 1% of the amount not paid in full for every
day begun following the due date, although no higher
than 10%
• Deregistration (art. 27a)
• Special charge (art. 27b)
• Interest (art. 28)
• Distraint
• Stop a business operation
28
Appeals (article 29)
• The decisions of the Director of Internal Revenue may
be appealed within 30 days
• Reasoned verdict from the Director of Internal
Revenue within two months
• Verdict may be appealed to the State Internal Revenue
within 3 months
• Dispute may be appealed to courts
• Appeal does not postpone the due date of the tax
29
Import
(article 34 to 35)
• Goods
• Service
• Postponement of payment
30
Import (article 36)
• Exemption from VAT
•
•
•
•
•
Goods which are duty-free according to Customs Act
Goods exempted according to international agreements
goods exempted from taxable turnover
Certain work of art imported by the artist himself
Written material sent to sicentific instituitions, libraries and
other public institutions if provided not for business
purposes
• Alcohol and tobacco acc. to Act. 96/1995
31
Inspection and penalty
(article 38 to 40)
• Inspection
• The Director of Tax Investigation can investigate
• Fine
• Up to ten times the tax amount evaded
• Gross violation, the Penal Code
• Fine according to the Accounting Act
• Fine according to the VAT act
32
Inspection and penalty
(article 41)
• The State Internal Revenue Board imposes penalty
unless case is handed to the police
• The Director of Tax Investigation can settle penalty if
beyond doubt
33
Vat refund (article 42)
• Residental housing 60%
• Temporary provision 100%
• Residental housing
• Vacation housing
• Designing
• Municipality housing
34
Vat refund (article 42)
• State agencies and municipalities
•
•
•
•
Refuse collection
Cleaning
Snow removal
Rescue activities and security arrangements due to natural
disasters and civil defense
• Service of engineers, technisians, architects, lawyers,
chartered accountants and other similar experts
• Service center for coordinated emergeny telephone service
35
Vat refund (article 42)
• Research equipment purchased by a research party for
grant money
• Operators of motor coaches
• Equipment and machinery for humanitarian
organizations and charities
• Vehicles for rescue teams
36
Vat refund (article 43)
• Tourists
• Embassies and foreign diplomats
37
Vat refund (article 43)
• Foreign enterprises
•
•
•
•
•
•
Condition
Application
Period
Minimun amounts
Documentation
Payment
38
Vat refund
(temporary provisions)
• Motor coaches and buses
• Automobiles driven by hydrogen and specialized spare
parts
39
Vat refund
• Nordic investment bank (NIB)
• European Patent Organisation
40
Thank you!
41