Iceland: Activity resolution – Phase I – Non-taxable debt securities

06.04.2020

Following previous announcements, and Announcement L19036 in particular, LuxCSD1 would like to update its customers on the situation in Iceland.

Supported by market strong cooperation, LuxCSD has now received sufficient confirmation to initiate progressive resolution of its activity in Iceland.

The reactivation of the activity will be deployed in phases, as the tax regulation will evolve and offer stable tax reporting requirements for each instrument category involved: non-taxable debt securities, equities and taxable debt securities.

At this stage, the process has been finalised for non-taxable debt securities, while amendment of the present Withholding Tax Act is still expected for taxable debt securities and equities.

On 4 December 2019, the Icelandic Ministry of Finance and Economic Affairs presented a draft bill to the parliament, which includes a proposal to amend Withholding Tax Act no. 45/1987 and abolish tax on capital gains derived from equity transactions for taxpayers with limited tax liability. This bill represents a prerequisite to the resolution of activity on equities.

The necessary amendment of the Withholding Tax Act, with respect to taxable debt securities, has been raised with local authorities as being a key factor that would allow LuxCSD1 to reactivate taxable debt securities activity.

The reactivation plan will therefore begin with non-taxable debt securities and will be followed by other asset types as the market situation evolves.

Impact on customers

LuxCSD is adapting its tax and reporting processes in order to fulfil progressive market changes in tax regulations.

Effective 6 April 2020, and in line with its new reporting obligations, the following changes apply to customers holding Icelandic assets in their account at LuxCSD.

Holding restrictions

Positions held in Icelandic non-taxable debt securities by LuxCSD customers, may only be held by the following:

  • Non-resident beneficial owners; and
  • LuxCSD customers that are Icelandic intermediary banks complying with Article 3.2 of Act no. 94/1996; or
  • Icelandic resident beneficial owners, if held via a LuxCSD customer, that is an Icelandic intermediary bank complying with Article 3.2 of Act no. 94/1996.

Positions that are held on behalf of Icelandic beneficial owners, may not be held via LuxCSD in any other cases.

Settlement activity on non-taxable debt securities not subject to capital restrictions

Settlement of Icelandic non-taxable debt securities is available to LuxCSD customers within the limits of the above holding restrictions. The applicable instruction specifications and deadlines remain unchanged and are available in the Market Link Guide - Iceland.

The list of non-taxable debt securities that fall under the scope of Article 1 of Act no. 39/2013, Article 1 of Act no. 53/2014 and Article 1 of Act no. 107/2015 (exemption from non-resident taxation of interests) can be found on the ISIN exemption page of the RSK website

The list of onshore securities, or securities not subject to restrictions can be found on the Nasdaq Iceland website.

Settlement activity on non-taxable debt securities subject to capital restrictions

The procedure to remove the capital restrictions currently in place on non-taxable debt securities positions will be described in a separate announcement. For offshore securities, or securities subject to restrictions, reference is made to the Bill of Legislation on the treatment of Króna-denominated assets subject to special restrictions (submitted to the 145th Legislative Session of Parliament 2015-2016).

Tax requirements applicable to non-taxable debt securities

A new tax procedure entered into force on 6 April 2020. Customers of LuxCSD that wish to hold Icelandic non-taxable debt securities are expected to comply with the new procedure, and the new disclosure requirements in particular. For a detailed description of the applicable tax procedure, LuxCSD invites its customers to refer to Announcement L20015.

Securities settlement instructions – summary

Security and instruction type

Status

Holding Restrictions

Domestic free of payment


Non-taxable debt securities only

Settlement in taxable debt securities and equities not permitted and will be rejected.

Holdings by Icelandic intermediaries, or on behalf of non-residents. Holdings on behalf of Icelandic residents are not permitted.

onshore Icelandic securities

Allowed

offshore Icelandic securities

Not allowed – exception exists

Domestic against payment


onshore Icelandic securities

Allowed

offshore Icelandic securities

Not allowed

Internal free of payment


onshore Icelandic securities

Allowed

offshore Icelandic securities

Not allowed

Internal against payment


onshore Icelandic securities

Allowed

offshore Icelandic securities

Not allowed

Bridge against payment or free of payment

Not allowed

Exceptions allowed - also refer to A17098

Status

Format requirements

Transfer free of payment of IS0000027068 between accounts subject to special restrictions

Allowed

Standard MT540/542 or CreationOnline equivalent

Narrative (one of the following):

ART 11.1, IBAN ISxxxxxx21xxxxxxxxxxxxxxxx

Receiving restricted securities account

CBI2016 TRANSFER

Deadline: 15:00 CET

Transfer free of payment of IS0000027068 between accounts subject to special restrictions with no change of beneficial owner (NCBO)a

Allowed

Standard MT540/542 or CreationOnline equivalent

Narrative (all of the following):

ART 11 37 2016

Receiving restricted securities account

Deadline: 15:00 CET

a. Transfers between custodians can entail cross border capital movements that are in breach of Act no. 87/1992 on Foreign Exchange. The Central Bank of Iceland can provide exemptions from the restrictions according to the Act on Foreign Exchange, cf. Article 7 of the aforementioned Act. Information on the exemptions process can be found on the Central Bank’s website or by email to: gjaldeyrismal@sedlabanki.is.

Cash settlement instructions (unchanged) – summary

Instruction type

Status

Process outcome and notes

Delivery of funds

  

onshorecash ISK

Allowed


offshore cash ISK

Not allowed – with exception

Rejected

Receipt of funds

  

onshorecash ISK

Allowed


offshore cash ISK

Allowed via CBI2016, for receipt of income proceeds purposes only.

Automatic conversion into CBI2016 (IS0000027068) - Credit of CBI2016 on a “best efforts” basis.

Internal transfer of funds

  

onshorecash ISK

Allowed


offshore cash ISK

Not allowed

Rejected

Exceptions allowed - also refer to A17098

Status

Format requirements

Withdrawal of offshore ISK cash, as authorised and within the limits set forth by the Art 12 of The Act is allowed

Allowed

Standard MT542 or CreationOnline equivalent, corresponding pre-advice of funds and :95Q::REAG//SISLISREXXX

Narrative text: “ART 12” and the CBI confirmation code (for example, ART 12 1610259).

Deadline: 14:00 CET

Further information

The Market Link Guide - Iceland will be updated accordingly.

For further information, customers may contact LuxCSD Client Services or their Relationship Officer.

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1. LuxCSD refers to LuxCSD S.A. with registered office at 42, Avenue J.F. Kennedy, L-1855 Luxembourg, registered with the Luxembourg Trade and Companies Register under number B-154.449.