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Iceland To Impose Exit Tax

by Ulrika Lomas,, Brussels

09 June 2015

The Government of Iceland has agreed to present legislation for the lifting of capital controls and the introduction of an "exit tax."

With regard to the settlement of the claims made by foreign creditors, including hedge funds, against the Icelandic banks that went bust in 2008, the Government stated that "the public interest demands that capital controls be lifted without jeopardizing economic and financial stability."

The total value of the underlying asset claims is said to be about ISK1.2 trillion (USD9bn). They consist of the ISK-denominated assets of the failed banks' estates, which total ISK500bn; the estates' foreign currency-denominated claims against Icelandic residents, totaling ISK400bn; and the offshore ISK held by non-residents of ISK300bn.

The legislation would seek to prevent the value of all those assets from flowing into the foreign exchange market at the same time and adversely affecting Iceland's balance of payments.

To that end, it has been decided that banks concluding their winding-up proceedings with an approved composition agreement by the end of this year will not be considered taxable entities. They will generally be able to obtain authorization to transfer their reduced capital realizations free of tax.

On the other hand, a one-off 39 percent tax will be imposed on the total assets of the remaining failed banks in accordance with their assessed value as of December 31, 2015.

It is estimated that net revenues from the exit tax could total ISK682bn. These revenues would be used to reduce Treasury debt.

TAGS: tax | investment | Iceland | law | banking | capital markets | hedge funds | legislation | tax rates | exit tax

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