Iceland: Activity resolution – Phase I – Non-taxable debt securities
Following previous announcements, and Announcement A19154 in particular, Clearstream Banking1 would like to update its customers on the situation in Iceland.
Supported by market strong cooperation, Clearstream Banking has now received sufficient confirmation to initiate progressive resolution of its activity in Iceland.
The reactivation of the activity will be deployed in phases, as the tax regulation will evolve and offer stable tax reporting requirements for each instrument category involved: non-taxable debt securities, equities and taxable debt securities.
At this stage, the process has been finalised for non-taxable debt securities, while amendment of the present Withholding Tax Act is still expected for taxable debt securities and equities.
On 4 December 2019, the Icelandic Ministry of Finance and Economic Affairs presented a draft bill to the parliament, which includes a proposal to amend Withholding Tax Act no. 45/1987 and abolish tax on capital gains derived from equity transactions for taxpayers with limited tax liability. This bill represents a prerequisite to the resolution of activity on equities.
The necessary amendment of the Withholding Tax Act, with respect to taxable debt securities, has been raised with local authorities as being a key factor that would allow Clearstream Banking to reactivate taxable debt securities activity.
The reactivation plan will therefore begin with non-taxable debt securities and will be followed by other asset types as the market situation evolves.
Impact on customers
Clearstream Banking is adapting its tax and reporting processes in order to fulfil progressive market changes in tax regulations.
Effective 6 April 2020, and in line with its new reporting obligations, the following changes apply to customers holding Icelandic assets in their account at Clearstream Banking.
Holding restrictions
Positions held in Icelandic non-taxable debt securities by Clearstream Banking customers, may only be held by the following:
- Non-resident beneficial owners; and
- Clearstream Banking customers that are Icelandic intermediary banks complying with Article 3.2 of Act no. 94/1996; or
- Icelandic resident beneficial owners, if held via a Clearstream Banking customer, that is an Icelandic intermediary bank complying with Article 3.2 of Act no. 94/1996.
Positions that are held on behalf of Icelandic beneficial owners, may not be held via Clearstream Banking in any other cases.
Settlement activity on non-taxable debt securities not subject to capital restrictions
Settlement of Icelandic non-taxable debt securities is available to Clearstream Banking customers within the limits of the above holding restrictions. The applicable instruction specifications and deadlines remain unchanged and are available in the Market Link Guide - Iceland.
The list of non-taxable debt securities that fall under the scope of Article 1 of Act no. 39/2013, Article 1 of Act no. 53/2014 and Article 1 of Act no. 107/2015 (exemption from non-resident taxation of interests) can be found on the ISIN exemption page of the RSK website.
The list of onshore securities, or securities not subject to restrictions can be found on the Nasdaq Iceland website.
Settlement activity on non-taxable debt securities subject to capital restrictions
The procedure to remove the capital restrictions currently in place on non-taxable debt securities positions will be described in a separate announcement. For offshore securities, or securities subject to restrictions, reference is made to the Bill of Legislation on the treatment of Króna-denominated assets subject to special restrictions (submitted to the 145th Legislative Session of Parliament 2015-2016).
Tax requirements applicable to non-taxable debt securities
A new tax procedure entered into force on 6 April 2020. Customers of Clearstream Banking that wish to hold Icelandic non-taxable debt securities are expected to comply with the new procedure, and the new disclosure requirements in particular. For a detailed description of the applicable tax procedure, Clearstream Banking invites its customers to refer to Announcement A20050.
Securities settlement instructions – summary
Security and instruction type | Status | Holding Restrictions |
Domestic free of payment | Non-taxable debt securities only Settlement in taxable debt securities and equities not permitted and will be rejected. Holdings by Icelandic intermediaries, or on behalf of non-residents. Holdings on behalf of Icelandic residents are not permitted. | |
onshore Icelandic securities | Allowed | |
offshore Icelandic securities | Not allowed – exception exists | |
Domestic against payment | ||
onshore Icelandic securities | Allowed | |
offshore Icelandic securities | Not allowed | |
Internal free of payment | ||
onshore Icelandic securities | Allowed | |
offshore Icelandic securities | Not allowed | |
Internal against payment | ||
onshore Icelandic securities | Allowed | |
offshore Icelandic securities | Not allowed | |
Bridge against payment or free of payment | Not allowed |
Exceptions allowed - also refer to A17098 | Status | Format requirements |
Transfer free of payment of IS0000027068 between accounts subject to special restrictions | Allowed | Standard MT540/542 or CreationOnline equivalent Narrative (one of the following): ART 11.1, IBAN ISxxxxxx21xxxxxxxxxxxxxxxx Receiving restricted securities account CBI2016 TRANSFER Deadline: 15:00 CET |
Transfer free of payment of IS0000027068 between accounts subject to special restrictions with no change of beneficial owner (NCBO)a | Allowed | Standard MT540/542 or CreationOnline equivalent Narrative (all of the following): ART 11 37 2016 Receiving restricted securities account Deadline: 15:00 CET |
a. Transfers between custodians can entail cross border capital movements that are in breach of Act no. 87/1992 on Foreign Exchange. The Central Bank of Iceland can provide exemptions from the restrictions according to the Act on Foreign Exchange, cf. Article 7 of the aforementioned Act. Information on the exemptions process can be found on the Central Bank’s website or by email to: gjaldeyrismal@sedlabanki.is.
Cash settlement instructions (unchanged) – summary
Instruction type | Status | Process outcome and notes |
Delivery of funds | ||
onshorecash ISK | Allowed | |
offshore cash ISK | Not allowed – with exception | Rejected |
Receipt of funds | ||
onshorecash ISK | Allowed | |
offshore cash ISK | Allowed via CBI2016, for receipt of income proceeds purposes only. | Automatic conversion into CBI2016 (IS0000027068) - Credit of CBI2016 on a “best efforts” basis. |
Internal transfer of funds | ||
onshorecash ISK | Allowed | |
offshore cash ISK | Not allowed | Rejected |
Exceptions allowed - also refer to A17098 | Status | Format requirements |
Withdrawal of offshore ISK cash, as authorised and within the limits set forth by the Art 12 of The Act is allowed | Allowed | Standard MT542 or CreationOnline equivalent, corresponding pre-advice of funds and :95Q::REAG//SISLISREXXX Narrative text: “ART 12” and the CBI confirmation code (for example, ART 12 1610259). Deadline: 14:00 CET |
Further information
The Market Link Guide - Iceland will be updated accordingly.
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
------------------
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.