A global miner base? Explore the tax and regulatory panorama of cryptocurrencies in Iceland in one article

 

Author: TaxDAO

Words: FinTax

 

1. Introduction

 

Iceland, thanks to its unique climatic conditions and natural resource reserves, has gradually become one of the important mining bases for cryptocurrencies. Iceland's cold climate provides excellent heat dissipation conditions for mining machines, and Iceland's abundant and cheap power resources and stable and friendly political policies give it a strong competitiveness in crypto mining. As a sanctuary for the cryptocurrency industry and home to global miners, Iceland's cryptocurrency tax system and regulatory developments are also in the spotlight, and this article focuses on this topic.

 

 

2. Iceland's basic tax system

 

2.1 Overview

 

In recent years, the Icelandic government has focused on simplifying the tax system, reducing tax rates, and expanding tax sources in tax reform, and has signed double taxation avoidance agreements with more than 30 countries, including China, the United States, and the United Kingdom. Iceland also offers tax incentives to attract foreign investment, such as tax breaks, cash subsidies, training assistance and land leases. At the central level, taxpayers need to pay corporate income tax, national personal income tax, value-added tax, environmental and resource tax, customs duties, accommodation tax, national television and broadcasting fees, etc.; At the local level, taxpayers need to pay municipal individual income tax, social insurance, municipal tax, real estate tax, stamp duty, inheritance tax, etc. These taxes can be broadly divided into direct and indirect taxes, with indirect taxes being the main form of taxation in Iceland. Compared to other countries, Iceland's tax system is characterized by its simplicity and effectiveness, which enhances the attractiveness of foreign investment and the international competitiveness of local companies.

 

2.2 Main Taxes

 

2.2.1 Corporate Income Tax

 

All companies incorporated in Iceland are considered to be resident businesses in Iceland, and foreign companies that have a branch office in Iceland or are effectively managed in Iceland are also resident businesses. Resident enterprises pay corporate income tax on their net income. According to the official announcement of the Tax Changes 2025 (Skattabreytingar árinu 2025) issued by the Icelandic Tax Authority, the general tax rate applicable to joint-stock enterprises and limited liability companies is 20%, and the special tax rate applicable to other entities such as partnerships and cooperatives is 37.6%.

 

2.2.2 Individual Income Tax

 

Any individual who stays in Iceland for more than 183 days in a 12-month period is considered a resident individual from the date of arrival and is fully liable for taxes on their worldwide income. Individuals who stay in Iceland temporarily for less than 183 days or less are non-resident individuals and are subject to national and municipal income tax on income derived from Iceland. Taxable income is salary minus pension fund premiums, and the personal income tax rate is progressive, as shown in the figure:

 

In addition, capital gains (e.g., dividends, interest) earned by individuals who are not engaged in business activities are taxed separately at a rate of 22%. Each person also receives a personal tax credit of ISK 68,691 per month, which is deducted from the calculated tax, and non-resident individuals can enjoy the same expense deductions as resident individuals.

 

2.2.3 VAT

 

Value Added Tax (VAT) is an indirect excise tax levied on all stages of domestic commercial transactions and on the import of goods and services. Domestic and foreign companies or self-employed individuals who sell goods and services in Iceland must declare and pay VAT at 24% (standard rate) or 11% (reduced rate, applicable in some scenarios). The taxpayer should complete the registration of the enterprise VAT, and after registration, it will obtain a VAT registration number and registration certificate. In particular, people who sell labor and services that are exempt from VAT, as well as businesses and individuals who sell taxable goods and services at a price of ISK 2,000.000 or less for every 12 months after the start of business activities, are exempt from VAT registration obligations. In addition, Iceland has introduced a reduced or complete exemption policy for a range of goods or services, such as VAT exemption for services such as public transport, health care, schools and educational institutions.

 

2.2.4 Environmental and resource taxes

 

There are three types of environmental and resource taxes in Iceland: fuel consumption tax, carbohydrate tax, and electricity and heat consumption tax. Fuel excise tax is levied on energy fuels. The Carbohydrate Tax is levied on liquid fossil fuels (i.e. natural gas and diesel, petrol, jet fuel and liquefied petroleum gas) and is subject to a processing tax and a carbohydrate tax on companies that are licensed for carbohydrate research or processing, as well as companies that are directly or indirectly involved in the processing or distribution of carbohydrates. The electricity and heat consumption tax is a special tax levied on the entity that sells electricity or hot water in the sales process of the user. Tax-exempt if the annual sales amount is less than ISK 500,000.

 

3. Iceland's cryptocurrency tax system

 

3.1 Overview of the Crypto Tax System

 

Iceland does not currently have specific legal provisions specifically for the taxation of cryptocurrencies, so these issues are dealt with in accordance with the general provisions of Icelandic tax law. The definition of "income" in the Icelandic Income Tax Act is a broad concept that covers any form of income earned by a taxpayer that can be assessed in monetisable, unless the law expressly provides for exemption. As a result, the Icelandic Tax Authority taxes cryptocurrency assets. In addition, according to the Icelandic definition of tax resident, regardless of whether the relevant business is domiciled in Iceland and whether the relevant individual is ordinarily resident, it is subject to Icelandic tax law.

 

In different scenarios, the corresponding tax treatment varies depending on the nature of the transaction. For example, capital gains made by individuals from cryptocurrency transactions are taxed at a rate of 22%, while cryptocurrency profits of businesses are taxed at a corporate rate of 20%. Mining income is considered taxable income and falls under the category of business income and is taxed at the standard income tax rate. In this regard, the Icelandic Tax Authority pointed out that taxpayers mainly trigger tax obligations in two scenarios: one is when receiving cryptocurrency, such as mining, and the employer uses cryptocurrency for salary payment; The second is when cryptocurrency is exchanged for other values, such as cryptocurrency sales, consumption, etc.

 

3.2 Receiving Cryptocurrency

 

Mining: Mining is often considered a commercial activity, and mined cryptocurrencies are subject to corporate or personal income tax on operating profits. The cost deduction rules are applicable to commercial mining, and the cost of hardware depreciation, electricity charges, and handling fees can be deducted. Individual incidental and non-large-scale mining activities are not commercial mining, and the cost cannot be deducted, and their income is taxed according to the income of ordinary individuals. In addition, Iceland does not impose a special electricity tax on mines for the time being, depending on electricity consumption or environmental impact.

 

Cryptocurrency as remuneration for services: When the employer pays wages in cryptocurrency, it must be converted into Icelandic krona at the market value on the day of payment and included in personal income, and the tax shall be withheld and remitted. The tax calculation is consistent with the fiat currency salary, and a progressive tax rate applies.

 

Donated cryptocurrency: Donated cryptocurrency, if the value does not exceed the scope of regular gifts, can be tax-exempt, such as small gifts between relatives and friends.

 

3.3 Exchange of cryptocurrencies for other assets

 

Tax liability is triggered when cryptocurrency is used to exchange for other assets (goods, services, fiat, or other cryptocurrencies). Common scenarios include selling cryptocurrencies for fiat currency, exchanging between different cryptocurrencies, and using cryptocurrencies to buy goods or services. However, the same user transferring cryptocurrencies between different wallets is not taxable because there is no real value exchange.

 

There are two types of cryptocurrency transactions under this heading, one is individual non-commercial transactions, where income is taxed at capital gains tax (22%), and the other is commercial transactions, where income is taxed on business profits. The criteria for distinguishing between the two include the continuity of the transaction, the intention to make a profit and the independence, that is, whether the frequency and scale of the transaction are similar to the operation of an enterprise, whether the main purpose is to earn the price difference, and whether it is a financial activity carried out independently. Trading activities with characteristics such as high-frequency trading or institutional investment will be considered as commercial transactions.

 

As for the specific calculation of capital gains, follow the formula of "cryptocurrency capital gains = transfer value - acquisition cost - deductible expenses". Among them, the value of the transfer is based on the actual market price of the cryptocurrency at the time of the transaction; The acquisition cost is the purchase price plus the handling fee at the time of purchase, and the market price at the time of cryptocurrency generation at the time of mining acquisition; Among the deductible expenses, there is a profit and loss netting rule, that is, the annual loss of the same cryptocurrency can be offset against the profit (e.g., BTC loss can be offset against BTC profit), but it cannot be offset across currencies. In addition, the losses caused by the loss of the private key and the theft of the wallet are not the losses that can be deducted as mentioned above.

 

4. Frontiers and development trends of cryptocurrency regulation in Iceland

 

At present, Iceland does not have a specific law on cryptocurrencies, but relies on the existing financial system to regulate the crypto industry, and the Financial Supervisory Authority (FME) and the Ministry of Finance regulate the crypto industry according to their existing responsibilities.

 

In 2018, Iceland established a basic regulatory framework for cryptocurrency businesses for the first time in the country with the introduction of the "Virtual Currency Service Provider Rules", which require cryptocurrency exchanges and wallet providers to register with the Financial Markets Authority and comply with Anti-Money Laundering (AML), Know Your Customer (KYC) regulations, and Counter-Terrorism Financing (CTF) regulations. In 2019, the Icelandic Financial Supervisory Authority approved Monerium, the country's first cryptocurrency institution, enabling it to offer blockchain-based e-money services within the European Economic Area, which was seen as a major breakthrough. In June 2023, the European Union officially published the Regulation of the Crypto Assets Market (MiCA), which will come into full force on December 30, 2024, and will apply to EEA countries, including Iceland. As one of the signatories, Iceland's cryptocurrency regulatory regime is aligned with MiCA and EU standards, which will also play a key role in Iceland's future compliance with cross-border crypto business.

 

The energy consumption and environmental impact of crypto mining on Iceland has gradually attracted the attention of the Icelandic government, and in March 2024, the Prime Minister of Iceland expressed his desire to reduce the country's crypto mining activities in an interview, and in light of this, the country is expected to shift its focus from crypto mining to the blockchain industry as a whole. At the same time, Iceland has also shown an exploratory interest in central bank digital currency (CBDC), with the central bank believing that CBDC may be a viable alternative to the traditional monetary payment system, the feasibility of which depends on the specific design of the CBDC, and like many countries, Iceland's evaluation of CBDC is still ongoing, and more institutional initiatives in this area are likely to be taken in the future.

 

5. Summary

 

Iceland has a relatively relaxed and friendly attitude towards the regulation and regulation of cryptocurrencies, which gives Iceland an important place in the global cryptocurrency trading and mining market. In contrast, the cryptocurrency industry has brought a lot of investment to Iceland and even contributed to the country's economic recovery after the 2008 bankruptcy crisis, which has also played a positive role in Iceland's economic development. The Icelandic government has been supporting the development of the cryptocurrency economy in the country in recent years, and its regulatory measures have always focused on preventing illegal financial activities. On the one hand, the government may continue to focus on this focus in the future, strengthen international cooperation in combating financial crimes, and promote the healthy development of the cross-border crypto industry. On the other hand, the impact of crypto mining on the country's environment and resources has attracted the attention of the government, and Iceland may explore more on the road of upgrading or transformation of related industries, which also brings new opportunities and challenges for crypto companies.

 

This article is sourced from Foresight News:

https://foresightnews.pro/article/detail/83749

Respectfully submitted by the AIC Team

May12, 2025