Individuals may qualify for tax relief when participating in a share capital increase of certain companies. To qualify, the company and the share capital increase must meet specific conditions and have been approved by the Director of Internal Revenue.
The tax relief allows part of the amount invested to be deducted from the income tax and/or capital income tax base. The deduction applies to investments made in 2016–2028, with the exception of 2025.
The deduction may amount to up to 75% of the investment in a share capital increase. For investments made in 2016–2019, the deduction was 50%.
The maximum deduction for each individual is 11,250,000 ISK (corresponding to an investment of 15,000,000 ISK). For investments made in 2016–2019, the maximum deduction was 5,000,000 ISK (for investments of 10,000,000 ISK).
Conditions the Company Must Meet
The company must obtain confirmation from the Director of Internal Revenue that all conditions have been met before proceeding with a specific share capital increase. An application for confirmation must be submitted using form RSK 2.30.
A separate application must be submitted for each share capital increase the company intends to carry out. An individual's right to claim the tax deduction is limited to the share capital increase that has been approved. If the share capital increase carried out does not correspond to the amount specified in the application, a new application must be submitted for any additional share capital increase.
The conditions are:
The company must be established in Iceland or another state within the European Economic Area (EEA), a member state of the European Free Trade Association (EFTA), or the Faroe Islands, and have a permanent establishment in Iceland.
The company must have no more than 25 employees and its annual turnover must be less than 650 million ISK and/or its balance sheet total must be less than 650 million ISK. If the company is part of a group of companies, these thresholds apply to the group as a whole on the basis of the consolidated financial statements.
Payment of all share capital issued upon the establishment of the company must have been completed.
The company must not be listed on a regulated market.
At the time of the share capital increase, the company must not have been operating in a market for more than seven years since its first commercial sale.
The company must be operated for profit.
The company must not be in financial difficulty. A company is considered to be in financial difficulty if at least one of the conditions set out in Regulation No. 785/2016 on tax relief for individuals in respect of share purchases is met.
The Icelandic State must not have an outstanding recovery claim against the company relating to unlawful state aid.
The company must have submitted to the Iceland Revenue and Customs its annual financial statements for the preceding financial year, prepared in accordance with the Annual Accounts Act.
The company must demonstrate that the proceeds of the share capital increase will be used for its business activities. If the company has not commenced business activities, at least 30% of the proceeds must be used for research or development relating to business activities that must commence within two years from the registration date of the share capital increase.
A share capital increase in a company may not exceed 2,000 million ISK. If the company is part of a group of companies, the maximum applies to the group as a whole.
Before a share capital increase takes place, the company must obtain confirmation from the Iceland Revenue and Customs that all conditions have been met. The application for confirmation must be submitted in the form determined by Iceland Revenue and Customs (form RSK 2.30), who may require the company to provide any documentation necessary for the application. Confirmation must be requested for each share capital increase. A refusal to grant confirmation may be appealed to the Internal Revenue Board.
The company must submit a list of participants in the share capital increase and ensure that the increase is registered in the Register of Limited Companies. The list must be submitted together with other required data in January.
Iceland Revenue and Customs must maintain a separate register of companies that have received confirmation under this provision and publish it on its website.
Conditions Relating to the Company's Activities
If the company's activities include any of the following, they do not qualify for the share investment tax deduction:
Trading in real estate
Rental of real estate or movable property
Activities of a holding company or investment company
Activities of regulated entities under Article 5 of Act No. 99/1999 on the Payment of Costs of Official Supervision of Financial Activities
Professional services and consultancy provided for a fee
Film production
Construction and any maintenance or improvements to structures
Activities related to investment in and/or operation of hotels, guesthouses and restaurants
Export and import of goods manufactured and developed by others
Mining
Conditions for an Individual's Tax Relief
The shares must be purchased as part of a share capital increase in a company that has received confirmation from Iceland Revenue and Customs. The tax relief does not apply to subsequent purchases, such as the purchase of shares originally issued in a share capital increase.
An individual's investment in each company must amount to at least 300,000 ISK.
The investment must be shown to have been paid in full.
An individual claiming the deduction must be included on the list that the relevant company is required to submit to Iceland Revenue and Customs of those who purchased shares in the company's share capital increase. The share capital increase must be registered in the Register of Limited Companies.
During the two years preceding the registered share capital increase, the individual must not have been connected with the company or its group of companies in any of the following ways:
Through financial interests connected with the company, or if the individual owns or will be entitled, directly or indirectly, to more than a 30% ownership interest in the company or more than 30% of its voting rights.
An individual is also considered connected with the company if their transactions with the company in connection with the share capital increase are not comparable to transactions generally conducted between unrelated parties.
The individual must retain the shares on which the deduction was based for three years. If the shares are sold within three years of the investment, the original deduction will be reversed with a 15% surcharge in the year in which the shares are sold.
The deduction is applied against the income tax base and/or capital income tax base. If the available deduction exceeds the individual's income tax and capital income tax bases, the unused amount may be carried forward between years until the deduction has been fully used, but for no longer than three years.
Further Information
Share investment tax deduction: Act No. 79/2016
Tax relief for share purchases: Regulation No. 785/2016
Share investment tax deduction, temporary provision: Act No. 37/2020
Companies That Have Received Confirmation
Iceland Revenue and Customs maintains a register of companies and share capital increases that have received confirmation. Only investments in such companies may qualify for the deduction.
Service provider
Skatturinn - Iceland Revenue and Customs