General information about income tax in the Faroe Islands
Pursuant to the “Home Rule Act” of 1948 the Faroe Islands are a self-governing region of the Kingdom of Denmark. The Faroe Islands have their own tax legislation and are one of the parties to the Nordic Tax Treaty.
The following is a description of the main rules only. There are many exceptions that are not mentioned. If you are in doubt, you can telephone or write to the address at the end of the page.
Full tax liability in the Faroe Islands applies to persons who are resident in the Faroe Islands or who stay there for at least 180 days in any 12-month period. Persons with full tax liability must declare all income, from the Faroe Islands and abroad, in their tax return (global taxation).
Limited tax liability in the Faroe Islands applies to persons who work temporarily in the Faroe Islands for less than 180 days.
Income from employment
Income from employment in the Faroe Islands is liable to tax in the Faroe Islands.
If an employee has limited tax liability in the Faroe Islands, the income earned in the Faroe Islands is taxed at a rate of 42 per cent, with no deductions.
Pensions from the Faroe Islands are liable to tax in the Faroe Islands.
Pensions from another Nordic country may be taxed in the source country, so that the Faroe Islands give credit for taxes paid in that country.
Between the Faroe Islands and Denmark the following applies:
1. Social pensions and other social security benefits are taxable only in the country of residence.
2. Pensions and other similar remunerations which are not covered by paragraph 1, and stems from one part of the kingdom (i.e. Denmark or the Faroe Islands) and are paid to a resident of the other part of the kingdom shall be taxable only in the other part of the kingdom, though see paragraphs 3 and 4.
3. Pensions and other similar remuneration as mentioned in paragraph 2 may also be taxed in the first part of the kingdom if:
a) contributions paid by the recipient to the pension scheme were deducted from the beneficiary's taxable income in the first part of the kingdom under the law in this part of the kingdom; or
b) contributions paid by an employer are not taxable income for the recipient of the first part of the kingdom under the law in this part of the kingdom.
4. Pensions and other similar remuneration as mentioned in paragraph 2 shall be taxable only in the first part of the kingdom, to the extent that:
a) contributions paid by the recipient to the pension scheme were taxed in the first part of the kingdom under the law in this part of the kingdom; or
b) contributions paid by an employer were not taxable income for the recipient in the first part of the kingdom under the law in this part of the kingdom.
In that case, such pensions and other similar remunerations are also wholly or partly exempt of duty that the other part of the kingdom levies on payment from pension and other similar remunerations.
Amendment to the Pension Contribution Act
As from 1 January 2012 pension contributions are taxed with 40 % and payments of these pensions are tax- and duty free. The taxation of 40% on pension contributions also applies to payments to foreign pension schemes.
Real property owned by persons with full tax liability in the Faroe Islands:
Rental income is taxed in the Faroe Islands, but there is no tax on real property (such as property value tax or property tax).
Rental income from real property abroad, can be taxed abroad.
Real property owned by persons resident outside the Faroe Islands:
Rental income from real property in the Faroe Islands owned by persons resident outside the Faroe Islands is liable to tax in the Faroe Islands.
Students from a Nordic country staying in the Faroe Islands for the purpose of studying will not be taxed in the Faroe Islands on income received outside the Faroe Islands.
There is an agreement between Denmark and the Faroe Islands to the effect that students from Denmark will not be taxed in the Faroe Islands on income earned in the Faroe Islands or in Denmark. The tax free amount for 2019 and 2020 is DKK 82.500 for students who have started their studies before 1 January 2011. For students who have started later than 31 December 2010, the tax free amount is DKK 80.000.
The Nordic Tax Treaty
If a person with full tax liability in the Faroe Islands has income or business activity in another Nordic country that is taxable both in the Faroe Islands and in the other Nordic country, the Faroe Islands will avoid double taxation in accordance with the provisions of the tax treaty.
If you have any questions about tax in the Faroe Islands, you are welcome to visit the tax portal, or contact:
Telefon: +0298 352600
Løgmansskrivstovan (Prime Minister´s Office) lms.fo
Føroya løgting (Faroese parliament) logting.fo
Almannamálaráðið (Ministry of Social Affairs) amr.fo
Heilsumálaráðið (Ministry of Health) hmr.fo
Fíggjarmálaráðið (Ministry of Finance) fmr.fo
Umhvørvis- og vinnumálaráðið (Ministry of Environment, Industry and Trade) uvmr.fo
Fiskimálaráðið (Ministry of Fisheries) fisk.fo
Uttanríkis- og mentamálaráði (Ministry of Foreign Affairs and Culture) ummr.fo
Føroya Gjaldstova (Faroese Department of Accounting and Financial Administration) gjaldstovan.fo
Hagstova Føroya (Faroese Statistics) hagstova.fo