Author: FinTax
1. Introduction
Iceland, thanks to its unique climate conditions and natural resource reserves, has gradually become one of the important mining bases for cryptocurrency. Iceland's cold climate provides excellent heat dissipation conditions for mining machines, and Iceland's abundant and cheap electricity resources and stable and friendly political policies have given it strong competitiveness in the crypto mining industry. As a shelter for the cryptocurrency industry and a base for global miners, Iceland's cryptocurrency tax system and regulatory dynamics have also attracted much attention. This article revolves around this topic. 2. Iceland’s Basic Tax System 2.1 Overview leaf="">Iceland has a relatively friendly tax environment and a relatively complete tax system. In recent years, the Icelandic government has focused on simplifying the tax system, reducing tax rates, and expanding tax sources in tax reform. It has signed double taxation avoidance agreements with more than 30 countries including China, the United States, and the United Kingdom. Iceland also provides tax incentives to attract foreign investment, such as tax exemptions, cash subsidies, training assistance, and land leasing. Iceland adopts a two-level taxation system, central and local. At the central level, taxpayers need to pay corporate income tax, national personal income tax, value-added tax, environmental and resource taxes, tariffs, accommodation taxes, national television and broadcasting fees, etc.; at the local level, taxpayers need to pay municipal personal income tax, social insurance, municipal taxes, real estate taxes, stamp duties, inheritance taxes, etc. These taxes can be generally divided into direct taxes and indirect taxes, among which indirect taxes are the main form of taxation in Iceland. Compared with other countries, Iceland's tax system is simple and effective, which enhances the attractiveness of foreign investment and the international competitiveness of local enterprises. 2.2 Main taxes 2.2.1 Corporate income tax All companies incorporated in Iceland are considered resident companies in Iceland. Foreign companies that have established branches or are effectively managed in Iceland are also considered resident companies. Resident companies pay corporate income tax on their net income. According to the official announcement of the Tax Changes in 2025 (Skattabreytingar á árinu 2025) issued by the Icelandic Tax Office, the general tax rate applicable to joint stock companies and limited liability companies is 20%, and the special tax rate applicable to other entities such as partnerships and cooperatives is 37.6%. 2.2.2 Personal income tax Any individual who stays in Iceland for more than 183 days in a 12-month period is considered a resident individual from the date of arrival and is fully taxable on his/her worldwide income. An individual who temporarily stays in Iceland for 183 days or less is considered a non-resident individual and is subject to state and municipal income tax on Icelandic-source income. Taxable income is wages minus pension fund premiums, and the individual income tax rate is progressive, as shown in the figure: In addition, capital gains (such as dividends and interest) obtained by individuals who are not engaged in business activities are taxed separately at a rate of 22%. Each person also enjoys a personal tax credit of 68,691 Icelandic kronor per month, which is deducted from the calculated tax. Non-resident individuals can enjoy the same expense deductions as resident individuals. 2.2.3 Value Added Tax Value Added Tax (VAT) is an indirect consumption tax levied on all stages of domestic business transactions and on the import of goods and services. Domestic and foreign companies or self-employed individuals who sell goods and services in Iceland must declare and pay VAT at 24% (standard rate) or 11% (reduced rate, applicable in some cases). Taxpayers should register for corporate VAT, after which they will receive a VAT registration number and a registration certificate. In particular, persons who sell labour and services exempt from VAT, as well as businesses and individuals who sell taxable goods and services for ISK 2,000.000 or less in each 12-month period after the start of their business activities, are exempt from the obligation to register for VAT. In addition, Iceland has also implemented a policy of reducing tax rates or completely exempting a series of goods and services, such as public transportation, health care, and the operation of schools and educational institutions. 2.2.4 Environmental and resource taxes Iceland's environmental and resource taxes include three types: fuel consumption tax, carbohydrate tax, and electricity and heat consumption tax. Fuel consumption tax is levied on energy fuels. Carbohydrate tax is levied on liquid fossil fuels (i.e. natural gas and diesel, gasoline, aviation fuel and LPG). Companies that have obtained carbohydrate research or processing licenses and are directly or indirectly involved in carbohydrate processing or distribution must pay processing tax and carbohydrate tax. Electricity and heat consumption tax is a special tax levied on entities that sell electricity or hot water at the user sales stage. If the annual sales amount is less than 500,000 Icelandic kronor, it is tax-free. 3. Iceland’s Cryptocurrency Tax System 3.1 Overview of Cryptocurrency Tax System Iceland has not yet enacted specific legal provisions specifically for cryptocurrency taxation, so related issues are handled in accordance with the general provisions of Icelandic tax law. The definition of “income” in the Icelandic Income Tax Act is a broad concept that covers any form of monetizable income obtained by a taxpayer, unless the law explicitly provides for exemptions. Therefore, the Icelandic Tax Administration imposes taxes on cryptocurrency assets. In addition, according to Iceland’s definition of tax residents, whether the relevant company is registered in Iceland or the relevant individual is a permanent resident, it is subject to Icelandic tax law.
In different scenarios, the corresponding tax treatment varies depending on the nature of the transaction. For example, capital gains obtained by individuals from cryptocurrency transactions are subject to capital gains tax at a rate of 22%, while corporate cryptocurrency profits are taxed at a corporate tax rate of 20%. Mining income is considered taxable income and falls under the category of business income and is taxed at the standard income tax rate. In this regard, the Icelandic Tax Office pointed out that taxpayers mainly trigger tax obligations in two scenarios: one is when receiving cryptocurrency, such as mining, employers using cryptocurrency for salary payments, etc.; the other is when cryptocurrency is exchanged for other values, such as cryptocurrency sales and consumption. 3.2 Receiving Cryptocurrency Mining: Mining is generally considered a commercial activity, and the cryptocurrencies mined are subject to corporate or personal income tax based on operating profits. Commercial mining is subject to cost deduction rules, and costs such as hardware depreciation, electricity costs, and handling fees can be deducted. Individual occasional, non-large-scale mining activities are not commercial mining, and costs cannot be deducted. Their income is taxed as ordinary personal income. In addition, Iceland has not yet levied special electricity taxes on mining farms for electricity consumption or environmental impact.
Cryptocurrency received as remuneration for services:When an employer pays wages in cryptocurrency, it must be converted into Icelandic krona at the market price on the day of payment and included in the individual's income, and taxes must be withheld and remitted. Tax calculation is the same as for wages in legal currency, and progressive tax rates apply.
Cryptocurrency received as gifts:Cryptocurrency received as gifts is tax-exempt if its value does not exceed the scope of regular gifts, such as small gifts between relatives and friends. 3.3 Exchange of Cryptocurrency for Other Assets When cryptocurrency is used to exchange for other assets (goods, services, legal tender or other cryptocurrencies), tax liability is triggered. Common scenarios include selling cryptocurrency for legal tender, exchanging between different cryptocurrencies, and using cryptocurrency to purchase goods or services. However, the transfer of cryptocurrency between different wallets by the same user is not subject to tax because there is no actual exchange of value. Cryptocurrency transactions under this item are divided into two types: one is personal non-commercial transactions, and the income is subject to capital gains tax (22%); the other is commercial transactions, and the income is subject to business profit tax. The criteria for distinguishing the two include the continuity, profit-making intention and independence of the transaction behavior, that is, whether the frequency and scale of the transaction are similar to business operations, whether the main purpose is to earn the difference, and whether it is an independently carried out financial activity. Trading activities with characteristics such as high-frequency trading or institutional investment will be judged as commercial transactions.
As for the specific calculation of capital gains, follow the formula "cryptocurrency capital gains = transfer value-acquisition cost-deductible expenses". Among them, the transfer value is based on the actual market price of the cryptocurrency at the time of the transaction; the acquisition cost is the purchase price plus the handling fee when it is purchased, and the market price when the cryptocurrency is generated when it is mined; among the deductible expenses, there is a rule of offsetting gains and losses, that is, the annual loss of the same cryptocurrency can be offset against gains (for example: BTC losses can be offset against BTC profits), but cross-currency offsets are not allowed. In addition, losses caused by the loss of private keys and theft of wallets do not belong to the aforementioned deductible losses.
4. Iceland's cryptocurrency regulatory frontier and development trend
Currently, Iceland has not yet formulated a special law on cryptocurrency, but relies on the existing financial system for regulation. The Financial Supervisory Authority (FME) and the Ministry of Finance supervise the crypto industry in accordance with their existing responsibilities.
In 2018, Iceland issued the "Virtual Currency Service Provider Rules", requiring cryptocurrency exchanges and wallet providers to register with the Financial Markets Authority and comply with anti-money laundering (AML), know your customer (KYC) regulations and counter-terrorism financing (CTF) regulations, establishing the basic regulatory framework for cryptocurrency business in the country for the first time. In 2019, the Icelandic Financial Supervisory Authority approved Monerium, the country's first cryptocurrency institution, to enable it to provide electronic currency services based on blockchain technology within the European Economic Area, which was seen as an important breakthrough. In June 2023, the European Union officially released the Crypto-Asset Market Regulation Act (MiCA), which will take full effect on December 30, 2024 and apply to European Economic Area countries including Iceland. MiCA makes detailed provisions on the definition of crypto assets, the access permits and business management of issuers and service providers. As one of the signatory members, Iceland's cryptocurrency regulatory system is consistent with MiCA and in line with EU standards. This move will also play a key role in Iceland's future compliance with cross-border crypto business. The energy consumption and environmental impact of crypto mining in Iceland have gradually attracted the attention of the Icelandic government. In March 2024, the Prime Minister of Iceland expressed his desire to reduce the country's crypto mining activities in an interview. In view of this, it is expected that the country will shift its focus from crypto mining to the entire blockchain industry. At the same time, Iceland has also shown an interest in exploring the issue of central bank digital currency (CBDC). The central bank believes that CBDC may be a viable alternative to the traditional monetary payment system. Its feasibility depends on the specific design of CBDC. Like many countries, Iceland's evaluation of CBDC is still ongoing and may take more institutional measures in this regard in the future. 5. Conclusion Iceland has a relatively relaxed and friendly attitude towards the regulation and supervision of cryptocurrencies, which makes Iceland occupy an important place in the global cryptocurrency trading and mining market. Relatively speaking, the cryptocurrency industry has brought a lot of investment to Iceland and even promoted Iceland's economic recovery after the bankruptcy crisis in 2008. It has also played a positive role in Iceland's economic development. In recent years, the Icelandic government has been supporting the development of the cryptocurrency economy in the country, and its regulatory measures have always focused on preventing illegal financial activities. On the one hand, the government may continue to focus on this in the future, strengthen international cooperation in combating financial crimes, and promote the healthy development of the cross-border crypto industry. On the other hand, the impact of crypto mining on the country's environment and resources has already attracted the attention of the government. Iceland may explore more on the road of upgrading or transforming related industries, which also brings new opportunities and challenges to crypto companies.
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