Iceland could be mini tax haven

Iceland may be known for its environmentally friendly power stations and its quirky pop singer, Bjork, but it could soon become a target for international business.

The centre-right coalition government is considering cutting the tax rate on companies setting up in Iceland from 30 to five per cent.

The move is designed to promote foreign investment into the country, which has to date been largely driven by its domestic industry. Observers predict that if legislation is introduced, the country could become a mini tax haven.

The idea has been proposed by the influential Iceland Chamber of Commerce and is now being considered by the Ministry of Commerce.

Gudjon Runarsson, the chamber's vice-president, said: "We haven't seen much foreign investment, with the only real foreign industry being the aluminium plants. The new IT industries are on the agenda in Iceland and we want to be ready to attract that investment.

"We have had conversations with the government, and they are looking into it now."

The chamber has already had one success in changing the country's tax system. In March 1999 it persuaded the government to reduce the tax rate on foreign companies based in Iceland that solely trade abroad. However, the tax rate restricted companies to trading with countries outside the European Economic Area - essentially Norway and Liechtenstein.

The Chamber's latest proposal broadens this legislation to allow companies to trade with businesses within the European Economic Area. If passed, five per cent income tax would be levied with no stamp duty and net wealth tax.

If turned into legislation - which could be in spring 2001 - Iceland could become a target for UK companies.

Technically, a UK dot com company could, for example, set up its head office in Iceland with a skeleton staff. It could then run the rest of its business form the UK and pay the Icelandic tax rate.

To qualify for the tax breaks, companies would need to submit a business plan, marketing details and a three-year development plan to the Ministry of Commerce.

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