Iceland | Changes to VAT Act Including 11% VAT Rate for Digital Magazines and Newspapers from 1st July 2018

The Icelandic Parliament has recently adopted Amending Act 1202 which provides (amongst other changes to the VAT Act) that as of 1st July 2018, supplies of sales and subscriptions of digital magazines and newspapers will be taxed at the reduced 11% VAT rate, currently enjoyed by their printed counterparts. Before this date, the standard 24% rate of VAT applies.

This action has been taken by the Icelandic government with the view that aligning the VAT rate on printed and electronic versions of magazines and newspapers, will enhance competitivity within the media industry.  Further, the move is in “the spirit” of OECD guidelines, highlighting that taxation between electronic and traditional transactions should demonstrate the principles of fairness and neutrality. (The most recent attempt by the European Commission on 25th May 2018 to push through a similar proposal at EU level was once again thwarted as the Economic and Financial Affairs Council (ECOFIN) was unable to come to an agreement on this issue.)

In addition, under Act 1202 the following amendments will also come into effect:

  • As of 1st July 2018, providers of passenger cars used for passenger transport in the tourism sector, may subject to certain requirements, deduct the input VAT attributable for their purchase, operation and rental;
  • As of 1st January 2019, in accordance with the application of the destination principle, business-to-business (B2B) supplies of sales and acquisitions of cross-border services such as telecommunication and accommodation services, will generally be taxed at the place where the services are used, which means that foreign suppliers may be required to register for Icelandic VAT. Before this date, the place of supply for services is generally the place where the service provider is located; and
  • As of 1st January 2019, the place of supply for supplies of papers and magazine subscriptions in print form by foreign providers is shifted to the place where the supply is used, once the KR 2 million annual VAT registration turnover threshold is exceeded. This means that foreign suppliers could be required to VAT-register, collect and return the VAT on their sales in Iceland. Before this date, these supplies are outside the scope of Icelandic VAT.

If you believe you may be affected by these developments, please do get in touch to discuss how we can help.