Iceland: Non-residents tax exempt from withholding tax on interest on Treasury bonds and bills

09.10.2014

Effective

immediately

Following the approval of the amended Income Tax Act 90/2003, and following clarification obtained from the Icelandic Tax Authorities (RSK), interest and any capital gains 1 realised from sale of Central Bank of Iceland debt securities issued on behalf of the Icelandic State Treasury, is now exempt for non-resident beneficial owners, with effective date 2 June 2014.

Previously only interest paid by the Central Bank of Iceland issued in its own name was exempt for non-resident beneficial owners.

Clearstream Banking2 customers are as a result of the above hereby informed of the applicable taxation treatment on interest from such securities.

Impact on customers

Following the amended Act, the following tax rates are applicable to coupon payments and transactions from Central Bank of Iceland debt securities issued in its own name or on behalf of the Icelandic State Treasury:

Interest 3
Non-resident beneficial owners0%
Icelandic Banks complying with article 3.2 of Act no. 94/19960%
Icelandic beneficial owners20%
Undisclosed beneficial owners20%

Documentation requirements

Clearstream Banking applies 0% non-resident withholding tax by default on coupon payments and transactions from Central Bank of Iceland debt securities issued in its own name or on behalf of the Icelandic State Treasury. Customers are therefore requested to take the following actions depending on their own residency and the residence of the underlying beneficial owners.

Clearstream Banking customers that are non-residents of Iceland

Non-resident customers holding on behalf of the following beneficial owners types, including themselves if applicable, must provide the following documentation in order to have the relevant withholding tax applied on coupon payments and transactions:

  1. Non-resident beneficial owners
    No certification or tax instruction is required in order to obtain the applicable rate of 0% on coupon payments and transactions, as Clearstream Banking applies 0% non-resident withholding tax by default.
  2. Icelandic beneficial owners

Coupon payments:

  • A Per payment Breakdown via formatted SWIFT MT565 or CreationOnline, indicating the following information:
    • the ISIN/Common Code of the security;
    • the payment date;
    • the Clearstream Banking customer account number;
    • the total holding position;
    • the position to apply the resident tax rate;
    • the tax rate to be applied (that is, 20% for Icelandic resident beneficial owners);
    • name, address and Icelandic TIN of the beneficial owner.

Transactions:

Coupon payments:

  • A Per payment Breakdown via formatted SWIFT MT565 or CreationOnline, indicating the following information:
    • the ISIN/Common Code of the security;
    • the payment date;
    • the Clearstream Banking customer account number;
    • the total holding position;
    • the position to apply the undisclosed tax rate;
    • the tax rate to be applied (that is, 20% for undisclosed holdings).

Transactions:

  • A Non-Exempt Transaction reportto be provided for taxable transactions that are performed on behalf of a beneficiary that is undisclosed to the Clearstream customer.

Clearstream Banking customers that are Icelandic Banks – complying with Article 3.2 of Act no. 94/1996

Note: Such entities are considered as Icelandic tax withholding agents, implying they must retain the appropriate tax amounts from their respective clients.

 

Deadlines (CET) for receipt of the required documentation by Clearstream Banking (CBL)

DocumentDeadline for receipt at CBL
A Per payment BreakdownOne business day before coupon payment date

A Non-Exempt Transaction report

One business day before the requested settlement date of the Transaction
A One-Time certificate for Icelandic Banks complying with article 3.2 of Act no. 94/1996One business day before the first coupon payment date or one business day before the first requested settlement date of the Transaction, as applicable.

Important note:

If the requested documentation and the required settlement information have not been provided before the relevant Clearstream Banking deadline, interest payments on coupons and transactions on the above Icelandic debt securities will be taxed with the non-resident rate of 0%.

Clearstream Banking reminds customers that it is the customer's full responsibility in all cases to ensure that final beneficial owners are eligible for the tax rates applied, including the Clearstream Banking default rates.

Standard refund

Non-resident beneficial owners eligible to receive interest payments on coupon and transaction on the above Icelandic debt securities at 0%, but for whom the previous rate of 10% was applied can apply for a standard refund by submitting the following documentation:

  • Form RSK 5.43: Application under Double Taxation Conventions for a Refund of Taxes Paid3. A version of this form is provided (for information purposes only) in the zip file attached to this Announcement. Only the page designated “for the Icelandic Tax Authorities” is to be sent to us.
    One Form RSK 5.43 must be provided per ISIN code.
    To ensure that we remain in the process flow, please enter IcelandTax@clearstream.com (our email address) in field 7 and tick “e-mail” in field 25. We will then be notified of the acceptance of the reclaim application and inform you accordingly. In addition, please leave blank the payment details in fields 17 to 23: we will enter our details so that payment will be forwarded to you through us (as is customary for refunds in other markets).
    Form RSK 5.43 must be dated and signed by the beneficial owner or by its legal representative under Power of Attorney.
  • Power of Attorney, if the reclaim forms are completed by a third party on behalf of the beneficial owner. A version of this form is provided in the zip file attached to this announcement.
  • Certificate of Residence (proving non-residency);
  • Credit Advice: The full chain of credit advices from the final beneficial owner to Clearstream Banking must be provided. A template is provided (as an example) in the zip file attached to this announcement.
  • Letter of Request to Clearstream Banking for Refund of Icelandic Withholding Tax, per reclaim request. The reference of the tax refund must be left blank: the unique identification number will be added by us. A version of this form is provided in the zip file attached to this announcement.

Statutory deadline

The statutory deadline for reclaiming withholding tax in the Icelandic market is four years after the date on which the tax was withheld.

The deadline by which Clearstream Banking must receive the documentation is at least two months before the statutory deadline. All standard refund applications received after this deadline will be processed by Clearstream Banking on a “best-efforts” basis. However, in such cases, Clearstream Banking will apply an extra charge and accepts no responsibility for forms that have not reached the Icelandic Tax Authorities by the date considered as being the statute of limitations deadline.

With respect to tax reclaims in general, customers are reminded that Clearstream Banking accepts no responsibility for their acceptance or non-acceptance by the tax authorities of the respective country. It is the customer's responsibility to determine any entitlement to a refund of tax withheld, to complete the forms required correctly and to calculate the amount due.

Further information

For further information, customers may contact the Clearstream Banking Tax Help Desk.

1. Any gains realised on debt securities are considered in Iceland as interest payments for tax purposes.

2. 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).

3. This includes coupon payments and transactions from Central Bank of Iceland debt securities issued in its own name or on behalf of the Icelandic State Treasury.

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