Verified Facts
The tax rates in Faroe Islands range from 37% to 45% for personal income tax, with a corporate tax rate of 18% and a value-added tax (VAT) rate of 25%.
Tax laws change frequently. Always consult a qualified tax professional for advice specific to your situation. This is a general guide only.
Quick Facts
Tax System Overview
The Faroe Islands has a territorial taxation system, where only income earned within the territory is subject to taxation. This means that individuals and companies are only taxed on income derived from sources within the Faroe Islands, and not on worldwide income. The residency rules for tax purposes in the Faroe Islands are based on the 183-day rule, where an individual is considered a tax resident if they have lived in the territory for at least 183 days in a calendar year.
The tax system in the Faroe Islands is also influenced by its relationship with Denmark, as the Faroe Islands are a self-governing territory within the Kingdom of Denmark. This means that the Faroe Islands have a significant degree of autonomy in taxation matters, but still follow some Danish tax laws and regulations. The tax authorities in the Faroe Islands are responsible for collecting taxes and enforcing tax laws, and they also provide guidance and support to taxpayers.
Personal Income Tax
| Income Bracket (DKK) | Tax Rate |
|---|---|
| 0 - 200,000 | 37% |
| 200,001 - 400,000 | 40% |
| 400,001 - 600,000 | 42% |
| 600,001 and above | 45% |
| The personal income tax system in the Faroe Islands has a range of deductions and allowances available to taxpayers, including a basic allowance of DKK 100,000 and a housing allowance of up to DKK 50,000. Taxpayers are required to file a tax return by the end of April each year, and can claim deductions and allowances on their tax return. The tax authorities also provide a range of tax credits to support low-income individuals and families. |
Corporate & Business Tax
- The corporate tax rate in the Faroe Islands is 18%, which is lower than the Danish corporate tax rate of 22%.
- Small businesses and start-ups may be eligible for incentives and subsidies, such as reduced tax rates and funding for research and development.
- The Faroe Islands has a range of free zones and business parks, which offer tax exemptions and other benefits to companies that locate there.
- Companies are required to register with the tax authorities and obtain a tax identification number in order to operate in the Faroe Islands.
- The Faroe Islands also has a range of double taxation treaties with other countries, which can help to reduce the tax burden on companies that operate internationally.
VAT / Sales Tax
- The standard VAT rate in the Faroe Islands is 25%, which applies to most goods and services.
- There are also reduced VAT rates of 0% and 7% that apply to certain goods and services, such as food and children's clothing.
- Some goods and services are exempt from VAT, such as healthcare and education services.
- The Faroe Islands also has a tourist refund scheme, which allows foreign visitors to claim a refund of VAT on certain purchases.
For Expats & Foreign Workers
- Expats and foreign workers are considered tax residents in the Faroe Islands if they have lived in the territory for at least 183 days in a calendar year.
- The Faroe Islands has a range of double taxation treaties with other countries, which can help to reduce the tax burden on expats and foreign workers.
- Expats and foreign workers may be eligible for tax credits and other benefits, such as a foreign tax credit for taxes paid in their home country.
- The Faroe Islands also has a range of social security agreements with other countries, which can help to coordinate social security benefits for expats and foreign workers.
- Expats and foreign workers are required to register with the tax authorities and obtain a tax identification number in order to work in the Faroe Islands.
- The Faroe Islands also has a range of remittance rules that apply to expats and foreign workers, which can affect the amount of tax they pay on their income.
Crypto & Investment Income
- Investment income, such as dividends and interest, is subject to taxation in the Faroe Islands.
- Cryptocurrency is considered an asset for tax purposes, and gains from the sale of cryptocurrency are subject to taxation.
- The Faroe Islands has a range of tax rules that apply to investment income, including rules on withholding tax and tax deductions.
- Investors may be eligible for tax credits and other benefits, such as a foreign tax credit for taxes paid in their home country.