Global Miner Base Camp? A panoramic view of Iceland's cryptocurrency tax and regulation

Author: FinTax, TaxDAO

1. Introduction

Iceland has gradually become one of the important mining bases for cryptocurrencies thanks to its unique climatic conditions and natural resource reserves. Iceland's cold climate provides excellent heat dissipation conditions for mining machines, and Iceland's rich and cheap power resources and stable and friendly political policies have given it strong competitiveness in crypto mining. As a shelter for the cryptocurrency industry and a base for miners around the world, the tax system and regulatory dynamics of Iceland's cryptocurrency have also attracted much attention. This article revolves around this topic.

2. Iceland's basic tax system

2.1 Overview

Iceland has a relatively friendly tax environment and a relatively complete tax system. In recent years, the Icelandic government has focused on simplifying the tax system, reducing tax rates, and expanding tax sources in tax reform, and has signed agreements to avoid double taxation with more than 30 countries including China, the United States, and the United Kingdom. Iceland also provides tax incentives to attract foreign investment, such as tax breaks, cash subsidies, training assistance and land leasing. Iceland adopts a central and local taxation system. At the central level, taxpayers need to pay corporate income tax, national personal income tax, value-added tax, environmental and resource tax, customs, accommodation tax, national television and broadcast fees, etc.; at the local level, taxpayers need to pay municipal personal income tax, social insurance, municipal tax, real estate tax, stamp tax, estate tax, etc. These taxes can be summarized as direct tax and indirect tax, where indirect tax is the main form of taxation in Iceland. Compared with other countries, the Icelandic tax system is characterized by simplicity and effectiveness, which enhances the attractiveness of foreign capital and the international competitiveness of local enterprises.

2.2 Main tax types

2.2.1 Company Income Tax

All companies registered and established in Iceland are considered resident enterprises in Iceland, and foreign companies that set up branches in Iceland or effectively manage in Iceland are also resident enterprises. Resident enterprises pay corporate income tax based on their net income. According to the official announcement of the "Tax Changes in 2025" issued by the Iceland Taxation Bureau (Skattabreytingar árinu 2025), the general tax rate applicable to joint-stock enterprises and limited liability companies is 20%, and the special tax rate applicable to other entities such as partnerships and cooperatives is 37.6%.

2.2.2 Personal Income Tax

Any individual who stays in Iceland for more than 183 days within 12 months is deemed a resident individual from the date of arrival and is fully tax liable for their global income. Individuals who stay in Iceland for a temporary stay of less than 183 days or less are non-resident individuals and shall pay national income tax and municipal income tax on income from Iceland. Taxable income is wages minus pension fund premiums, and the personal income tax rate is based on a progressive system, as shown in the figure:

In addition, capital gains (such as dividends, interest) obtained by individuals who do not engage in commercial activities are taxed separately at a 22% tax rate. Each person also enjoys a personal tax credit of 68,691 Icelandic Krone per month, deducted from the calculated taxes, and non-resident individuals can enjoy the same fee deduction as the resident individuals.

2.2.3 Value-added tax

Value-added tax (VAT) is an indirect consumption tax imposed on all stages of domestic commercial transactions and on the import of goods and services. Domestic and foreign companies or self-employed people selling goods and services in Iceland must declare and pay VAT of 24% (standard tax rate) or 11% (lower tax rate, applicable to some scenarios). The taxpayer should complete the registration of the enterprise's VAT, and after registration, they will obtain the VAT registration number and registration certificate. In particular, those who sell VAT-free labor and services, as well as businesses and individuals who sell taxable goods and services at Iceland Krone 2,000.000 or less every 12 months after the start of a commercial activity, are exempt from the obligation to register VAT. In addition, Iceland also implements policies to reduce tax rates or completely exempt a series of goods or services, such as exempting VAT for services such as public transportation, health care, and operations of schools and educational institutions.

2.2.4 Environmental and Resource Tax

Iceland's environmental and resource tax includes three types: fuel consumption tax, carbohydrate tax, electricity and heat consumption tax. Fuel consumption tax is levied on energy fuels. Carbohydrate tax is levied on liquid fossil fuels (i.e. natural gas and diesel, gasoline, aviation fuel and petroleum gas). Companies that obtain carbohydrate research or processing licenses, and those involved in carbohydrate processing or distribution directly or indirectly, must pay processing tax and carbohydrate tax. Electricity and heat consumption tax is a special tax charged to the entity selling electricity or hot water during the sales process of the user. If the annual sales amount is less than 500,000 Icelandic Krone, tax exemption is available.

3. Iceland's cryptocurrency tax system

3.1 Overview of the Crypto Tax System

Iceland has not yet formulated specific legal provisions specifically for cryptocurrency taxation, so the relevant issues are dealt with in accordance with the general provisions of Iceland's tax laws. The Iceland Income Tax Act defines “income” as a broad concept that covers the monetizable assessment of income obtained by taxpayers in any form unless exempted explicitly provided by law. Therefore, the Iceland Taxation Bureau imposes taxes on cryptocurrency assets. Moreover, according to Iceland's definition of tax residents, regardless of whether the relevant company uses Iceland as its registered place or whether the relevant individual is a permanent resident, it is subject to Iceland's tax laws.

In different scenarios, the corresponding tax treatment varies by nature of the transaction. For example, capital gains taxes are imposed on individuals’ capital gains from cryptocurrency transactions at a rate of 22%, while corporate cryptocurrency profits are imposed on a rate of 20%. Mining income is considered taxable income, belongs to the category of operating income, and is taxed at the standard income tax rate. In this regard, the Iceland Taxation Bureau pointed out that taxpayers mainly trigger tax obligations in two scenarios: one is when receiving cryptocurrencies, such as mining, employers use cryptocurrencies for wage payment, etc.; the other is when using cryptocurrencies to exchange for other values, such as selling and consumption of cryptocurrencies.

3.2 Receive cryptocurrencies

Mining: Mining is usually considered a business activity, and the cryptocurrency mined is taxed on business or personal income based on operating profits. Commercial mining applies cost deduction rules, which can deduct hardware depreciation, electricity bills, handling fees and other costs. Individual accidental and non-large-scale mining activities are not commercial mining and cannot be deducted costs. Their income is taxed on ordinary individual income. In addition, Iceland has not yet imposed special electricity tax on mines on electricity consumption or environmental impacts.

Cryptocurrency obtained as labor remuneration: When an employer pays his salary in cryptocurrency, it must be converted into Icelandic Kroner according to the market price on the day of payment and shall be included in his personal income, and taxes shall be withheld. The tax calculation is consistent with fiat currency wages, and the progressive tax rate is applicable.

Gifted cryptocurrency: The cryptocurrency that is given is tax-free if the value does not exceed the scope of the regular gift, such as small gifts between relatives and friends.

3.3 Exchange cryptocurrency for other assets

Tax obligations are triggered when cryptocurrencies are used to exchange other assets (goods, services, fiat currency or other cryptocurrencies). Common scenarios include selling cryptocurrencies to exchange fiat currencies, exchange between different cryptocurrencies, and using cryptocurrencies to purchase goods or services. However, the same user transfers cryptocurrency in different wallets without real value exchange and no tax is required.

Under this item, cryptocurrency transactions are divided into two types: one is personal non-commercial transactions, with income levied according to capital gains tax (22%), and the other is commercial transactions, with income levied according to operating profit tax. The criteria for distinguishing the two include the continuity of transaction behavior, profit intention and independence, that is, whether the transaction frequency and scale are similar to that of the business operations, whether it is mainly aimed at earning the difference, and whether it is independently carried out financial activities. Trading activities with characteristics such as high-frequency trading or institutional investment will be judged as commercial transactions.

As for the specific calculation of capital gains, follow the formula "cryptocurrency capital gain = transfer value - acquisition cost - deductible expenses". Among them, the transfer value is based on the actual market price of the cryptocurrency when the transaction occurs; the acquisition cost is the purchase price plus the handling fee when the purchase is obtained, and the market price when the cryptocurrency is generated when the mining is obtained; in the deductible fee, there is a profit-loss rule, that is, the annual loss of the same cryptocurrency can offset the profit (for example: BTC losses can offset the BTC profit), but cannot be offset across currencies. In addition, losses caused by loss of private keys and wallet theft do not belong to the aforementioned deductible losses.

4. Frontiers and Development Trends of Iceland's Cryptocurrency

Regulation

At present, Iceland has not yet formulated special laws on cryptocurrencies, but relies on the existing financial system to regulate it. The Financial Regulatory Bureau (FME) and the Ministry of Finance shall supervise the crypto industry in accordance with their existing responsibilities.

In 2018, Iceland introduced the "Virtual Currency Service Provider Rules", requiring cryptocurrency exchanges and wallet providers to register with the Financial Markets Authority, and comply with anti-money laundering (AML), understanding customer (KYC) regulations and anti-terrorism financing (CTF) regulations, establishing a basic regulatory framework for cryptocurrency business for the first time in the country. In 2019, the Iceland Financial Regulatory Authority approved the country's first cryptocurrency institution Monerium, which enables it to provide blockchain-based e-monetary currency services across the European Economic Area, which is seen as an important breakthrough. In June 2023, the EU officially issued the Crypto Assets Market Supervision Act (MiCA), which came into effect on December 30, 2024 and applies to countries in the European Economic Area, including Iceland. MiCA has made detailed provisions on the definition of crypto assets, access licensing and business management of issuers and service providers. As one of the signed members, Iceland's cryptocurrency regulatory system is consistent with MiCA and is in line with EU standards. This measure will also play a key role in Iceland's future compliance with cross-border crypto services.

The energy consumption and environmental impact of crypto mining on Iceland have gradually attracted the attention of the Icelandic government. In March 2024, the Icelandic Prime Minister expressed his desire to reduce the country's crypto mining activities in an interview. In view of this, it is expected that the country will shift its focus from crypto mining to the entire blockchain industry. At the same time, Iceland also demonstrated its interest in exploring on the issue of central bank digital currency (CBDC). The central bank believes that CBDC may be a feasible alternative to traditional currency payment systems. Its feasibility depends on the specific design of CBDC. Like many countries, Iceland's assessment of CBDC is still in progress and more institutional measures may be taken in this area in the future.

5. Summary

Iceland has a relatively relaxed and friendly attitude towards cryptocurrency regulations and regulation, which gives Iceland an important place in the global cryptocurrency trading and mining market. In contrast, the cryptocurrency industry has brought a lot of investment to Iceland and even promoted Iceland's economic recovery after the bankruptcy crisis in 2008, which also played a positive role in Iceland's economic development. In recent years, the Icelandic government has supported the development of the cryptocurrency economy in its own country, and its regulatory measures have always focused on preventing illegal financial activities. On the one hand, the government may continue to pay attention to this focus in the future, strengthen international cooperation in combating financial crimes, and promote the healthy development of the cross-border crypto industry. On the other hand, the impact of crypto mining on the country's environment and resources has attracted the attention of the government. Iceland may explore more on the road to upgrading or transformation of related industries, which also brings new opportunities and challenges to crypto companies.