Author: TaxDAO
Written by: FinTax
1. Introduction
Iceland, benefiting from its unique climate 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, while its abundant and cheap electricity resources and stable, friendly political policies have given it strong competitiveness in the crypto mining industry. As a sanctuary for the cryptocurrency industry and the headquarters for global miners, Iceland's cryptocurrency tax system and regulatory dynamics have attracted significant attention, and this article will explore this theme.
2. Iceland's Basic Tax System
2.1 Overview
Iceland has a relatively friendly tax environment and a relatively complete tax system. In recent years, the Icelandic government has focused on simplifying the tax system, reducing tax rates, and expanding the tax base, signing double taxation avoidance agreements with more than thirty countries, including China, the United States, and the United Kingdom. Iceland also provides tax incentives to attract foreign investment, such as tax exemptions, cash subsidies, training assistance, and land leasing. Iceland adopts a two-tier taxation system at the central and local levels. At the central level, taxpayers need to pay corporate income tax, national personal income tax, value-added tax, environmental and resource taxes, customs duties, accommodation tax, and national television broadcasting fees. At the local level, taxpayers need to pay municipal personal income tax, social insurance, municipal tax, property tax, stamp duty, and inheritance tax. These tax types can be broadly categorized into direct and indirect taxes, with indirect taxes being the primary form of taxation in Iceland. Compared to other countries, the characteristics of Iceland's tax system are simplicity and effectiveness, thereby enhancing the attractiveness of foreign investment and the international competitiveness of local enterprises.
2.2 Main Tax Types
2.2.1 Corporate Income Tax
All companies registered in Iceland are considered resident enterprises. Foreign companies with branches in Iceland or effectively managed in Iceland are also considered resident enterprises. Resident enterprises pay corporate income tax on net income. According to the official announcement "Tax Changes in 2025" issued by the Icelandic Tax Authority, the general tax rate for joint-stock companies and limited liability companies is 20%, while the special tax rate for other entities such as partnerships and cooperatives is 37.6%.
2.2.2 Personal Income Tax
Any individual staying in Iceland for more than 183 days within 12 months is considered a resident individual from the date of arrival and is fully tax-liable for global income. Individuals staying in Iceland for 183 days or less are non-resident individuals and pay national and municipal income tax on income from Iceland. Taxable income is wages minus pension fund premiums, with a progressive personal income tax rate as shown in the image:
Additionally, capital gains (such as dividends and interest) for individuals not engaged in commercial activities are taxed separately at a 22% rate. Each person enjoys a personal tax credit of 68,691 Icelandic krona per month, which is deducted from the calculated tax. Non-resident individuals can enjoy the same expense deductions as resident individuals.
2.2.3 Value Added Tax
Value Added Tax (VAT) is an indirect consumption tax levied on all stages of domestic commercial transactions and the import of goods and services. Domestic and foreign companies or individual entrepreneurs selling goods or services in Iceland must declare and pay VAT at 24% (standard rate) or 11% (reduced rate, applicable in some scenarios). Taxpayers should complete VAT registration for enterprises, after which they will receive a VAT registration number and certificate. Notably, those selling labor and services exempt from VAT, and enterprises and individuals selling taxable goods and services at 2,000,000 Icelandic krona or less within the first 12 months of business activity, are exempt from VAT registration obligations. Moreover, Iceland implements reduced rates or complete exemptions for a series of goods or services, such as exempting services for public transportation, healthcare, schools, and educational institutions from VAT.
2.2.4 Environmental and Resource Taxes
Iceland's environmental and resource taxes include three types: fuel consumption tax, carbohydrate tax, and electricity and heat consumption tax. Fuel consumption tax is levied on energy fuels. Carbohydrate tax is imposed on liquid fossil fuels (i.e., natural gas, diesel, gasoline, aviation fuel, and petroleum gas). Companies with carbohydrate research or processing permits, and those directly or indirectly involved in carbohydrate processing or distribution, must pay processing and carbohydrate taxes. Electricity and heat consumption tax is a special tax collected from entities selling electricity or hot water at the user sales stage. If the annual sales amount is less than 500,000 Icelandic krona, it is tax-exempt.
3. Iceland's Cryptocurrency Tax System
3.1 Cryptocurrency Tax System Overview
Currently, Iceland has not established specific legal provisions for cryptocurrency taxation, so related issues are handled according to the general provisions of Icelandic tax law. The definition of "income" in Iceland's Income Tax Law is a broad concept that covers monetary-assessable gains obtained by taxpayers in any form, unless explicitly exempted by law. Therefore, the Icelandic Tax Authority levies taxes on cryptocurrency assets. Moreover, based on Iceland's definition of tax residents, all related enterprises and individuals are subject to Icelandic tax law, regardless of their registration location or residency status.
Tax treatment varies across different scenarios. For instance, capital gains from cryptocurrency transactions for individuals are taxed at 22%, while corporate cryptocurrency profits are taxed at 20%. Mining income is considered taxable income, falling under business income and taxed at the standard income tax rate. The Icelandic Tax Authority points out that taxpayers primarily trigger tax obligations in two scenarios: first, when receiving cryptocurrencies, such as through mining or employer wage payments; second, when exchanging cryptocurrencies for other values, such as selling or consuming cryptocurrencies.
3.2 Receiving Cryptocurrencies
Mining: Mining is typically considered a commercial activity, and mined cryptocurrencies are taxed as business profits for enterprises or individuals. Commercial mining is subject to cost deduction rules, allowing deductions for hardware depreciation, electricity fees, handling fees, etc. Occasional, non-large-scale individual mining is not considered commercial mining, cannot deduct costs, and is taxed as ordinary personal income. Additionally, Iceland currently does not levy special electricity taxes on mining farms for power consumption or environmental impact.
Cryptocurrencies received as labor compensation: When employers pay wages in cryptocurrencies, they must convert them to Icelandic krona at the market price on the day of payment, include them in personal income, and withhold taxes. Tax calculation is consistent with fiat currency wages and applies a progressive tax rate.
Gifted cryptocurrencies: Gifted cryptocurrencies may be tax-exempt if the value does not exceed the normal gift range, such as small gifts between friends and family.
3.3 Exchanging Cryptocurrencies for Other Assets
When cryptocurrencies are used to exchange other assets (goods, services, fiat currency, or other cryptocurrencies), tax obligations are triggered. Common scenarios include selling cryptocurrencies for fiat currency, exchanging between different cryptocurrencies, or using cryptocurrencies to purchase goods or services. However, transferring cryptocurrencies between different wallets by the same user does not involve actual value exchange and is not taxable.
In this section, cryptocurrency transactions are divided into two types: first, personal non-commercial transactions, which are taxed at capital gains tax (22%), and second, commercial transactions, which are taxed at business profit tax. The criteria for distinguishing between the two include the continuity of trading activities, profit intent, and independence, such as whether the trading frequency and scale are similar to business operations, whether the primary purpose is to earn price differences, and whether it is an independently conducted financial activity. Trading activities with characteristics of high-frequency trading or institutional investment will be deemed commercial transactions.
Regarding the specific calculation of capital gains, the formula follows "cryptocurrency capital gains = transfer value - acquisition cost - deductible expenses". Among them, the transfer value is based on the actual market price of the cryptocurrency at the time of the transaction; the acquisition cost is the purchase price plus handling fees when purchased, and the market price when generated through mining; in deductible expenses, there is a profit and loss offset rule, meaning annual losses of the same cryptocurrency can offset gains (for example: BTC losses can offset BTC profits), but cross-cryptocurrency offset is not allowed. Additionally, losses due to private key loss or wallet theft do not belong to the aforementioned deductible losses.
4. Iceland's Cryptocurrency Regulation Frontier and Development Trends
Currently, Iceland has not yet developed a specific law for cryptocurrencies, but instead relies on the existing financial system for regulation, with the Financial Supervisory Authority (FME) and the Ministry of Finance implementing oversight of the crypto industry within their existing responsibilities.
In 2018, Iceland issued the "Virtual Currency Service Provider Rules", requiring cryptocurrency exchanges and wallet providers to register with the Financial Market Authority and comply with Anti-Money Laundering (AML), Know Your Customer (KYC), and Counter-Terrorist Financing (CTF) regulations, establishing a basic regulatory framework for cryptocurrency business in the country for the first time. In 2019, the Icelandic Financial Supervisory Authority approved the country's first cryptocurrency institution, Monerium, allowing it to provide blockchain-based electronic money services within the European Economic Area, which was considered a significant breakthrough. In June 2023, the EU officially released the Markets in Crypto-Assets Regulation (MiCA), which will fully take effect on December 30, 2024, and applies to European Economic Area countries including Iceland. MiCA provides detailed regulations on the definition of crypto assets, entry permits, and operational management of issuers and service providers. As a signatory member, Iceland will keep its cryptocurrency regulatory system consistent with MiCA and aligned with EU standards, which will also play a crucial role in enabling compliant cross-border crypto business in the future.
The energy consumption and environmental impact of crypto mining have gradually attracted the attention of the Icelandic government. In March 2024, the Prime Minister expressed a desire to reduce the country's crypto mining activities. Given this, it is expected that the country will shift its focus from crypto mining to the entire blockchain industry. At the same time, Iceland has also shown interest in exploring Central Bank Digital Currency (CBDC), with the central bank believing that CBDC could be a viable alternative to traditional monetary payment systems. Its feasibility depends on the specific design of CBDC. Like many countries, Iceland is still assessing CBDC, and may take more institutional measures in this area in the future.
5. Conclusion
Iceland maintains a relatively relaxed and friendly attitude towards cryptocurrency regulation and oversight, which has secured its important position in the global cryptocurrency trading and mining market. Relatively, the cryptocurrency industry has brought substantial investment to Iceland and even promoted its economic recovery after the 2008 bankruptcy crisis, playing a positive role in its economic development. In recent years, the Icelandic government has consistently supported the development of the cryptocurrency economy domestically, with regulatory measures primarily focused on preventing illegal financial activities. On one hand, the government may continue to focus on this area, strengthen international cooperation in combating financial crimes, and promote healthy cross-border crypto industry development. On the other hand, the impact of crypto mining on the country's environment and resources has caught the government's attention. In the path of industrial upgrading or transformation, Iceland may conduct more exploration, bringing new opportunities and challenges for crypto enterprises.
