Employers in the Faroe Islands have certain tax responsibilities, including making contributions towards social security and other mandatory funds.

Social Security Contributions

Employers are required to pay a percentage of employees' salaries towards the Employers' Social Contribution (ALS). The contribution rates typically amount to 4% of the employee's gross salary.

Labor Market Supplementary Pension Fund (ATP)

In some cases, employers may also be required to contribute to an industry-specific supplementary pension scheme known as the Labor Market Supplementary Pension Fund (ATP). The contribution rates for this fund vary and are typically a fixed sum per employee. It's important to note that the ATP scheme is mandatory within specific industries.

Industry Variation

The contribution rates and mandatory supplementary pension schemes can vary depending on the industry of the company and collective bargaining agreements. Therefore, it's highly recommended that employers consult with the Faroe Islands Social Security Institution (Fíggjarmálastovan) or a tax professional in the region for precise contribution rates and regulations within their specific industry.

In the Faroe Islands, progressive income tax brackets are used. For income earned in 2023, the tax rates are as follows:

• Bottom Tax (Kommunuskattur): Ranges from approximately 16-22% depending on municipality
• Middle Tax (Miðskattur):
  • Income up to roughly 84,000 DKK: 0%
  • Income from roughly 84,000 DKK to 633,000 DKK: 15%
  • Income exceeding roughly 633,000 DKK: 22%
• Top Tax (Toppskattur): 16% applied to annual income exceeding approximately 1.2 million DKK

These brackets and figures serve as a guideline. Up-to-date information can be found on the website of the Faroe Islands Tax Authority (TAKS).

Social Security Contributions

Employees in the Faroe Islands contribute the following:

• Employees' Social Contribution (ALS): A percentage of the employee's gross salary (typically 0.71% as of 2023), withheld from wages.

Other Mandatory Deductions

• Labor Market Supplementary Pension Fund (ATP): Employees may be required to contribute to an industry-specific supplementary pension scheme. Contribution rates vary but are typically a fixed sum per employee. (The ATP scheme is mandatory within specific industries).

Important Considerations

• Withholding: Employers are responsible for deducting income tax and social security contributions from their employees' salaries.
• Industry Variation: Contribution rates and mandatory supplementary pension schemes vary depending on the industry of the company and collective bargaining agreements.

The Faroe Islands, an autonomous territory within the Kingdom of Denmark, operates its own independent VAT system.

VAT Rate

The standard VAT rate in the Faroe Islands is 25%, applicable to most commercial sales and services. This tax is referred to as "Meirvirðirgjald" (MVG) in Faroese.

VAT Registration

Businesses operating in the Faroe Islands that exceed a specific turnover threshold are required to register for VAT. This threshold is adjusted periodically. Registered businesses must charge VAT on their taxable supplies and account for the VAT collected to the tax authorities.

VAT Treatment for Specific Services

While the general VAT rate is 25%, certain services may be subject to a reduced rate or even be exempt from VAT altogether. Unfortunately, there isn't readily available information on a comprehensive list of these services online. For specific details and to ensure compliance, it's recommended to consult the Faroese tax authorities.

VAT for Non-Residents

Non-residents visiting the Faroe Islands are generally exempt from paying VAT on purchases exceeding DKK 300 (subject to certain conditions). This is a form of tax-free shopping. For details and claiming tax refunds, visitors can refer to the official Faroe Islands tourism website.

Important Note: This information provides a general overview. For up-to-date and specific VAT regulations applicable to your situation, consult the Faroese tax authorities.

The Faroe Islands, while not offering a broad range of tax incentives, does have certain beneficial tax provisions and schemes aimed at supporting businesses activities.

Corporate Income Tax Rate

The corporate income tax rate in the Faroe Islands is relatively competitive at 18%, lower than the average in Scandinavian countries. This can make the Faroe Islands an attractive destination for business investment.

Tax Exemptions

Foreign-Sourced Income: Companies based in the Faroe Islands are generally exempt from paying taxes on income earned outside of the Faroe Islands. This exemption can be particularly advantageous for international businesses with operations in multiple jurisdictions.

Fishing Industry Benefits

Investment Allowance for Fishing Vessels: The Faroese tax authorities offer an investment allowance for new fishing vessels, encouraging growth and modernization of the fishing industry, a cornerstone of the Faroese economy.

Fuel Tax Exemption for Fishing Vessels: Fishing vessels are eligible for an exemption from fuel taxes, reducing operational costs and supporting fishing activities.

Research and Development

Tax Deductions for R&D Expenses: Businesses investing in research and development activities may be eligible for deductions on qualifying expenses, fostering innovation and technological advancement.

Regional Development Schemes

Tax Benefits for Investments in Regional Development: The Faroe Islands government has implemented schemes to encourage investment in specific regions or industries, often involving tax benefits or incentives. Details for these schemes can be obtained from the Faroese tax authorities.