Iceland´s positive business environment, low tax rates and efficient infrastructure make the country an ideal candidate for an international finance center according to a new report compiled for the Prime Minister by a team of experts. The team recommended a number of measures and government officials hope that the Parliament will finish the legislative reforms before summer.

Why Iceland?

Iceland does not have a long history as a financial center and is much better known for competitively priced sustainable energy and quality seafood. But extensive reforms, including liberalisation and privatisation, has changed the business environment dramatically during the last decade and Iceland is now recognized as one of Europe's most competitive economies.

The report on Iceland as an International Finance Center

The report on Iceland as and International Fincance Center was published on November 10th 2006 in a conference attended by politicians, scholars and representatives from the industries in Iceland. The team introduced an Action Plan 2006 till 2009. A widespread consensus on the main goal; attracting international companies and funds with low taxation, and positive attitude and support from the government, are among Iceland´s various strengths. The focus is firmly on offering competitive environment for "onshore" activities.

The team is confident that Iceland can attract the headquarters of international companies by offering a competitive and simple tax system. The team has put forward a number of proposals to improve Iceland´s competitiveness, ranging from strengthening the technical infrastructure and minimizing red tape to further tax reforms. Working on all these reforms within the legal framework and obligations of the European Economic Area is considered to be a strength, not a weakness.

Progressively Lower Corporate Income Tax

One of the main proposals of the expert team is to offer an even lower corporate income tax rate than the current 18% on income above a certain limit - establishing a sliding scale mechanism. Corporote income tax ranging from 18% down to 10% means that Iceland will in effect offer one of the lowest corporate taxes within the European Economic Area.

International Centre for Pension Funds

The Icelandic pension system has gained international acknowledgement for strong pension funds with an intersting mixture of occupational group insurance and individual savings. This model can be marketed internationally according to the report and Iceland is an obvious choice for international companies, interested in multinational pension funds operating within the legal framework of the European Union.

Other measures

The team put forward a great number of ideas in its report. E.g. creating a simple legislative framwork for trusts, eliminating witholding tax for recipients resident within the European Economic Area or in a country with which Iceland has a tax treaty in force, encouraging the establishment of research and development centres by eliminating tax on royalties and attracting ex-patriates by offering a period of lower income tax.

Legislative reforms before next summer

The report was welcomed by the government and business spokesmen alike and the Prime Minister has established a joint ministerial committe of government officials to prepare necessary legislative changes.

Addressing the annual Fall Conference of the Institute of State Authorized Public Accountants in Iceland, on November 17th, Mr. Bolli Thor Bollason, Permanent Secretary at the Prime Minister´s Office, said that the goal was for the Parliament to pass the legislative reforms before next summer.

The Team of Experts

The team behind the report is in fact a think tank, appointed by the Prime Minister in October 2005, to research Iceland´s possibilities to become an international finance centre, focusing on how to improve laws and regulations. Chairman of the committee was Sigurdur Einarsson, Chairman of the Board of Directors, Kaupthing Bank. Other members were Bolli Thor Bollason, Permanent Secretary, Prime Minister´s Office; Baldur Gudlaugsson, Permanent Secretary, Ministry of Finance; Kristjan Skarphedinsson, Permanent Secretary, Ministry of Industry and Commerce; Palmi Haraldsson, Managing Director, Fons Investments, Asdis Halla Bragadottir, Managing Director, BYKO; Jon Sigurdsson, Governor, Central Bank of Iceland; Haukur Hafsteinsson, Managing Director, Pension Fund for State Employees; Hulda Dora Styrmisdottir, Consultant; Gudjon Runarsson, Managing Director, Bankers´and Securities Dealers´Association of Iceland; Halldor B. Thorbergsson, Economist, Iceland Chamber of Commerce; Katrin Olafsdottir, Assistant Professor, School of Business, Reykjavik University.