Vessels in FAS must be owned by a company registered in the Faroe Islands. The share capital requirement is a minimum DKK 50,000 or DKK 500,000. There are two different types of limited liability companies that are regulated by two different Company Acts.
In fact, there are limited differences between the two Acts, but customarily a P/F company structure is regarded as more appropriate for larger companies, while the Sp/f company is regarded as more suitable for smaller companies with less market capitalization.
One shareholder, foreign or Faroese may own all shares in the company.
A Faroese corporation distributing dividends is obliged to withhold 18% tax on dividends – whether the recipient is resident or non-resident. However, the obligation to withhold the tax does not apply for any part of the total dividend that is distributed to a parent corporation situated in the Faroe Islands.
A 25% withholding tax is levied on royalties paid from the Faroe Islands to a recipient abroad. However, in double taxation treaties the Faroe Islands has waived the right to tax royalties from sources within the Faroe Islands. The royalty tax applies to commercial royalties and licenses, but not to artistic royalties or lease payments.
There is no withholding tax on interest.
The Faroe Islands has entered into a double taxation treaty with the other Nordic countries. It is a tax credit type of treaty, where the tax abatement is the lower of (1) the tax paid in the foreign country, or (2) the amount of Faroese tax in proportion to total Faroese tax that the net foreign income bears to the company’s taxable income in Faroe Islands.
The term, ‘qualifying company’, used in the schedule below for resident and non-treaty simply means a company that is a shareholding company in a Faroese company. The term, ‘Treaty’, means a company whose share of a Faroese subsidiary is at least 10%.
Dividend tax
| Recipient | Qualifying companies | Other | Interest tax | Royalty tax |
|---|---|---|---|---|
| Resident and nontreaty | ||||
| Resident corporations | 0% | 18% | Nil | Nil |
| Resident individuals | *38% | Nil | Nil | |
| Non-treaty / non-resident corporation | 18% | 18% | Nil | Nil |
| Non-treaty / non-resident individuals | *38% | Nil | Nil | |
| Treaty | ||||
| Denmark | 0% | 15% | Nil | Nil |
| Finland | 0% | 15% | Nil | Nil |
| Iceland | 0% | 15% | Nil | Nil |
| Norway | 0% | 15% | Nil | Nil |
| Sweden | 0% | 15% | Nil | Nil |
Note:
Recipient qualifying companies situated in a ‘treaty country’ have to apply for a refund of the withholding tax (18%) on dividends.
* Dividend tax for "Other" is 38% in 2011, decreasing by 1% a year to 35% in 2014.
The Faroe Islands has entered into an agreement with UK to enter into a double taxation treaty effective as of the first of January 2009.
