Employer Tax Contributions

Tax Type	Rate	Base
Labour Market Fund (ALS)	4%	Gross salary
Mandatory Pension Contribution	15% (combined, increasing 1% annually)	Gross salary
Holiday Pay Fund (FeriuLøn)	12.5%	Employee's salary

Filing & Compliance

• Monthly Reporting: Employers must report salaries paid and taxes/contributions withheld/calculated for each employee monthly.
• Monthly Payment: Withheld income tax and employer social contributions must be paid to TAKS monthly.
• Annual Reporting: An annual summary of salaries paid and taxes/contributions reported must be submitted.

In the Faroe Islands, employee tax deductions depend on whether an individual is considered to have full or limited tax liability. Those with full liability pay income tax based on a progressive system, while those with limited liability pay a flat rate with no deductions.

Full Tax Liability

This status applies to residents or those staying in the Faroe Islands for 180 days or more within a 12-month period. Individuals with full tax liability are subject to income tax on worldwide income. The tax rate on A-income (income taxed at source) is approximately 40%, varying based on income and municipality.

• Income Tax: Around 40% of A-income, depending on income level and municipality. This is a progressive tax, meaning the rate may change as income increases. The tax system operates on a pay-as-you-earn (PAYE) system, meaning taxes are withheld by employers.
• Municipal Tax: Varies by municipality.
• Parental Contribution: 0.71% for those aged 16-67.
• Labour Market Contribution (Samhaldsfasti): 3% of taxable income.
• Unemployment Benefit Fund (ALS): 1.25% of taxable income.
• Public Health Insurance (Heilsutrygd): DKK 175 per month + 0.60% of taxable income.
• Public Broadcaster Charge (Kvf): DKK 150 per month (DKK 50 for those over 67; exempt for those 23 and under). There are exceptions for students.

Deductions are available for those with full tax liability, such as child allowance (amount varies based on child's age). Tax returns are required to declare all income (domestic and foreign).

Limited Tax Liability

Applies to individuals working temporarily in the Faroe Islands for less than 180 days.

• Income Tax: A flat rate of 42% of A-income.
• Labour Market Contribution: 3% of taxable income.

Those with limited tax liability are not eligible for deductions like the child allowance or interest subsidy. They also do not declare foreign income on tax returns as they are only liable for Faroese sourced income. Employees of FAS (Faroe Islands National and International Ship Register) or BareBoat ships pay a 35% tax rate.

General Information

• Bank Account: Required to receive salary and pay taxes. The Faroe Islands have four main banks: Bank Nordik, Betri Banki, Norðoya Sparikassi, and Suðuroya Sparikassi.
• Tax Year: Follows the calendar year (January 1st to December 31st).
• Tax Administration (TAKS): The Faroese tax authority.

This information is current as of February 5, 2025, and might be subject to change. It's recommended to consult with TAKS or a tax advisor for personalized advice.