NOTE: The exemption/reduction in Iceland under the current agreements can only be achieved if the Director of Internal Revenue requests an exemption/reduction on Form 5.42. Until there is an exemption allowed with the number one registered, you have to pay taxes in Iceland. Double taxation agreements (DBAs) are contracts between two or more countries to avoid international double taxation between income and wealth. The main objective of the DBA is to distribute the right of taxation among the contracting countries, to avoid differences, to guarantee equal rights and security of taxpayers and to prevent tax evasion. Iceland has several agreements on tax issues with other countries. Persons permanently residing and subject to an unlimited tax obligation in one of the contracting states may be entitled to exemption or reduction in the taxation of income and property, in accordance with the provisions of each agreement, without the income being otherwise doubly taxed. Each agreement is different and it is therefore necessary to review the agreement in question in order to determine where the tax debt of the person concerned is actually located and the taxes prescribed by the agreement. The provisions of tax treaties with other countries may result in a restriction of Icelandic tax law. Tax benefits granted under the DBA for payments can be granted in two ways.
On the one hand, there may be a tax exemption or a reduced rate for corresponding payments. On the other hand, there may be a refund of the deductions deducted. . . . To qualify for tax benefits in Iceland under the DBA concluded, a foreign taxholder in the other contracting country must be subject to a full and unlimited tax liability with respect to permanent residence or other circumstances. 1. Canada – Tanzania, income tax and capital tax (1995).