Dividents

Dividends are payments made by a company to its shareholders in respect of their ownership of shares.

In brief:

• Dividends are subject to capital income tax.

• Dividends from shares in companies listed on a regulated market or a multilateral trading facility (MTF) are included in the shared capital income tax-free threshold.

• Dividends may be paid in cash or in kind.

When dividends are paid, capital income tax is often withheld at source by the company making the payment. If dividends are paid without tax being withheld, for example by a foreign company, capital income tax is assessed following the processing of the annual tax return.

Dividends are treated as income in the year in which the decision to distribute the dividend is made, not necessarily in the year in which the dividend is paid.

Tax-Free Threshold for Dividends

Dividends from shares in companies listed on a regulated market or a multilateral trading facility (MTF) are included in the shared capital income tax-free threshold. Capital income tax is payable only on the portion of dividend income that exceeds the threshold.

Under the tax-free threshold, capital income tax is payable only on the amount exceeding 300.000 ISK per year for individuals and 600.000 ISKper year for married couples and jointly assessed cohabiting partners.

The capital income tax-free threshold is shared across interest income, dividends and capital gains from shares in companies listed on a regulated market or a multilateral trading facility (MTF).

Unlawful Dividend Distributions

If a dividend distribution is unlawful, the payment is treated either as employment income or as a gift.

Such payments are taxed under the ordinary income tax rules and are also subject to municipal income tax.

Dividends from Foreign Shares

Dividends from foreign shares must be reported in the annual tax return. The amount should be converted using the buying exchange rate applicable at the time the dividend was paid.

If tax has already been paid on the dividend abroad, this must be disclosed in the tax return and supporting documentation must be provided.

Further Information

• Taxable capital income: Article 7, Section C of Act No. 90/2003 on Income Tax

• Taxable dividends: Article 11 of Act No. 90/2003 on Income Tax

• Withholding tax on capital income: Act No. 94/1996

• Rules on benefits in kind, income and deductions: Tax Assessment Guidelines (Skattmat)