Iceland: New information regarding withholding tax on equities

Following recent exchanges with the Icelandic Tax Authorities, the RSK, we hereby inform Clearstream Banking¹ customers of the applicable taxation treatment of dividends and transactions in Icelandic equities.

Background

Following the introduction, on 1 September 2009, of withholding tax on Icelandic securities for non-resident beneficial owners, dividends and capital gains realised on the sale of Icelandic equities are subject to tax.

As of 1 February 2010, Clearstream Banking became an account operator at the Icelandic Central Securities Depository (CSD) and, as a consequence, became withholding agent for both debt securities and equities under the guidance of the RSK.

The RSK have recently reviewed their guidance as follows.

Dividends

The full dividend distribution is taxable at the standard withholding tax rate of 20% (18% for foreign legal entities).

Withholding and reporting responsibilities do not rest with Clearstream Banking but with the issuer distributing the dividend.

Impact on customers

As a consequence of the shift in responsibilities, the relief at source and reclaim procedures offered by Clearstream Banking no longer apply. We are currently actively working with the Icelandic issuers and the RSK to identify potential new relief at source and standard refund procedures.

We will provide updated information as soon as it becomes available.

Capital gains on equity transactions

Capital gains on equity transactions are calculated based on trade price and are taxable at the standard rate of 20% (18% for the foreign legal entities).

New developments

A bill has been introduced in parliament that aims at clarifying the responsibilities for withholding tax on capital gains. The bill, if approved, would require banks, custodians and other financial intermediaries to withhold tax on capital gains on equity transactions.

This clarification follows a ruling from the Icelandic court dealing with tax matters (the YSKN, case 138/2010) stating that the current legislation is unclear regarding the party responsible for withholding and reporting on capital gains tax.

We are monitoring the situation closely and will provide further information as soon as it becomes available.

Impact on customers

Until the bill is approved, no withholding tax on capital gains on equities will be applied. Nevertheless, we kindly ask you to continue providing the trade price within your settlement instructions in order to enable proper tax calculation should the bill be passed.

Further information

For further information, please contact the Clearstream Banking Tax Help Desk on:

or Clearstream Banking Customer Service or your Relationship Officer.

1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).