The new income and capital tax treaty between Iceland and Switzerland entered into force on 6 November 2015. The treaty, signed 10 July 2014, replaces the 1988 income and capital tax treaty between the two countries.
The treaty covers Icelandic income taxes to the state and to the municipalities. It covers Swiss federal, cantonal and communal taxes on income and capital.
A protocol signed with the treaty includes the provision that if the holding period for the dividends tax exemption is subsequently met after the payment is made, the beneficial owner will be entitled to a refund of the tax withheld.
The following capital gains derived by a resident of one Contracting State may be taxed by the other State:
Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.
Iceland generally applies the credit method for the elimination of double taxation, but if the income is only taxable in Switzerland under the treaty, Iceland will apply the exemption method.
Switzerland generally applies the exemption method, but in the case of income covered by Articles 10 (Dividends) and 12 (Royalties) Switzerland may apply the credit method, a lump sum reduction, or a partial exemption.
A protocol to the treaty includes a limitation on benefits provision whereby the benefits of the treaty provided by Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 21 (Other Income) will not apply for income paid under a transaction or derived by an entity if the main purpose of the transaction or establishment of the entity was to obtain the benefits of the treaty.
The treaty applies from 1 January 2016.
The treaty replaces the 1988 income and capital tax treaty between the two countries, although the 1988 treaty will continue to apply for tax years and periods that have ended before the new treaty applies.
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