Foreign Collection

Individuals who have immigrated to a foreign country and owe taxes in Iceland can expect the claim to be sent for collection to their current country of residence.

  • Treaties: The Nordic countries have made a treaty amongst themselves on mutual assistance in tax collection to ease the collection process and ensure the rights of debtors. A treaty between the Council of Europe and OECD is also in effect on the same matters. The Directorate of Customs collects the tax claims sent to Iceland that fall under the treaties and, likewise, sends out claims originated in Iceland to other member states.
  • What taxes fall under the treaties: The taxes that are collected in this way are e.g. income tax, net worth tax, municipal income tax, inheritance and gift tax, vehicle excise duty, VAT and social security charge.
  • Reciprocity: The assistance with collection of taxes is mutual and the member states are obliged to collect claims sent amongst them if they are legally valid.
  • Prerequisites for claims to be sent: A tax claim can only be sent for collection in another member state if it is not possible to collect it within the country of origin and collection methods have proven ineffective.  
  • Tax Claim Breakdown: A claim may only be collected provided that the principal reaches a certain minimum amount (25,000 ISK in September 2008). Furthermore, the claim must be broken down so that the debtor can clearly see what taxes are being collected, when the tax was levied and how much the principal, penalty interests and costs are.
  • Interests: While a claim is being collected in the country it is sent to, no interests accumulate there, although they can accumulate in the claim's country of origin.
  • Collection measures: The member states are obliged to process claims sent to them by other member states in the same way as their own claims are processed.
  • Nullification: Nullification of a claim is decided by laws that are in effect in the claim's country of origin.
  • Fiduciary and final dates: The country of origin has the fiduciary of a claim and is the sole authority when it comes to dropping a claim. On the other hand, the country that collects the claim can change the final date as is routine.
  • Bankruptcy: The country collecting the claim may not call for bankruptcy of the debtor's estate because of foreign claims unless a specific petition or a clearance is received from the claim's country of origin.