Foreign tax credit
The Income Tax Act offers a foreign tax credit to mitigate the potential for double taxation. The credit applies only to taxes of a nature similar to the tax being reduced by the credit (i.e. taxes based on income). This credit is limited to the amount of tax attributable to foreign-source income.
Temporary reimbursements in respect of filmmaking in Iceland
On account of Act No. 43/1999 on Temporary Reimbursement in Respect of Filmmaking in Iceland, it is possible to have 25% of production expenses incurred in the production of films or television material in Iceland reimbursed. When more than 80% of the total production cost of a motion picture or television programme is incurred in Iceland, the reimbursement shall be calculated from the total production cost incurred within the EEA. Production costs refer to all costs incurred in Iceland deductible from the revenues of enterprises pursuant to the provisions of the Income Tax Act. Payments pertaining to employees and contractors are only to be included in production costs if they are verifiably taxable in Iceland.
Application for reimbursement of production costs shall be submitted to a committee of reimbursements in respect of filmmaking. The application, with supporting documentation, shall be submitted before production commences in Iceland.
Act No. 43/1999 on Temporary Reimbursements in Respect of Filmmaking in Iceland expires at year-end 2025. All projects approved by that date will be reimbursed in accordance with the law.
Temporary reimbursements in respect of music recording in Iceland
On account of Act No. 110/2016 on Temporary Reimbursement of Recorded Music, it is possible to have 25% of cost incurred reimbursed when recording music in Iceland that has been released and made accessible to the general public. When more than 80% of the total recording cost is incurred in Iceland, the reimbursement shall be calculated from the total production cost incurred within the EEA. Reimbursable cost refers to all costs that may be used for calculating the refund amount, cf. Article 6 of Act No. 110/2016.
Application for reimbursement of production costs shall be submitted to the Ministry. The application, with supporting documentation, shall be submitted lo later than six months after the latest audio file for which a refund is applied for.
Act No. 110/2016 on Temporary Reimbursements of Recorded Music expires at year-end 2022. All applications received by the Ministry prior to that time shall be processed.
Support for innovation enterprises
Innovative companies are entitled to a special deduction from CIT amounting to 20% of expenses incurred on the projects, provided certain conditions are met.
For the years 2023 and 2024, the maximum amount on which the deduction is calculated within each company shall not exceed ISK 1.1 billion for each operating year. In the case of purchased research and development (R&D) services, maximum expenses shall not exceed ISK 200 million.
Act on incentives for initial investments in Iceland
Incentives are offered to companies that are investing in commercial operations in Iceland. The investment projects need to meet requirements, such as being beneficial for the Icelandic economy and society, in terms of job creation, rural development, exports, and tax revenues and knowledge.
Approved investment projects will receive benefits in return, including derogations from taxes and charges. In addition, authorisation to fix the rate of income tax, in line with the current rate of income tax, for ten years can be granted, as well as exemption from customs and excise duties on importation or domestic purchase of construction materials, machinery, and equipment for the building and operation of the investment project.
Act. No. 41/2015 on incentives for initial investments in Iceland expired at the end of June 2020. Incentives granted prior to that time shall remain in force for the period according to the agreement in question.