On 10 July 2014, a new income and capital tax treaty between Iceland and Switzerland was signed. Once in force and effective, the treaty will replace the 1988 tax treaty between the two countries.
The treaty covers the Icelandic income taxes to the state and to municipalities, and Swiss federal, cantonal and communal taxes on income and capital.
Iceland generally applies the credit method for the elimination of double taxation, while Switzerland generally applies the exemption method. However, in the case of Dividend or Royalty income, Switzerland may apply the credit method if requested by the taxpayer
A protocol to the treaty includes a limitation on benefits provision whereby the benefits of the treaty articles on dividends, interest, royalties, and 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 will enter into force once the ratification instruments are exchanged, and will generally apply from 1 January of the year following its entry into force.
Once in force, the new treaty will replace the 1988 income and capital tax treaty between the two countries, which currently applies. However, the 1988 treaty will continue to apply for tax years and periods that have ended before the new treaty applies.
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