Taxation in the Faroe Islands has differed from the taxes in Denmark since home rule was granted in 1948. This gives the Faroe Islands control over their own taxes.[1]
All citizens of the Faroe Islands are subject to personal taxation. The government tax rate on incomes up to DKK 500,000 is 20%. Incomes higher than this pay a fixed amount, always resulting in a higher percentage.[2] There are multiple tax deductions in the Faroes. This includes a 14% deduction for fishermen. However, this is limited to 14% of DKK 470,000 corresponding to a maximum annual deduction of DKK 65,800.[3] A deduction for foreign workers also exists, and this deduction can be as high as 30%. Deductions are also available to students and parents.
The VAT or Value Added Tax, is a tax on imports and sales paid to the Faroese treasury.[3] The VAT is deductible for income purposes. Companies that don't pay a VAT must pay an employer's tax. The corporate tax rate in the Faroe Islands stands at 18%.
Citizens subject to taxation use the calendar year as the income tax/fiscal year. Generally, the income period for companies follows the accounting year, which has to be no longer than 12 months. However, the first accounting year can vary from 6 to 18 months.[4]
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