Iceland - A New Venue For International Nominee Companies?

The History of the Subject

As many readers will be aware, the UK non-disclosed agency or nominee company has for many years been a valued tool in the international tax planner’s arsenal. Such nominee companies often “sit” between an offshore principal and a trading counter party as a convenient vehicle to prevent obvious trading between an onshore counter party and the offshore principal. The purpose of this planning structure usually being to prevent undue commercial curiosity from the third parties about the overall international tax planning of its commercial supplier (who may at some point in the future also become a competitor).

For a number of years Anglo Saxon tax planners used UK or Irish non-resident companies to achieve the desired result. However, since February 1999 and the demise of the Irish non-resident company, other alternatives have become required.

The UK Agency Company

One possible alternative is, of course, the UK nominee or non-disclosed agency company. Typically, such companies act pursuant to an agency or nominee agreement for an offshore principal (e.g. a Jersey exempt company). The offshore company (or its beneficial owners) will have secured a possible source of business in a third country, and they may be anxious that competitors do not know they are entering the new market. To achieve the necessary commercial confidentiality they may well be advised to set up an English (often erroneously referred to as a UK) non-disclosed agent. The directors of the English company may well then offer to supply the goods or services to the intended new market but possibly unknown to the new counter party only as an agent for their offshore principal. The existence of whom they are usually precluded from disclosing by the terms of the agreement appointing them as nominee or agent.

The UK Tax Consequence of the Agency Agreement

Companies or other persons who are not UK-resident are generally only subject to UK tax on UK source income. Such UK sources of income include dividends from UK companies, loan interest paid by a UK borrower, or royalties from the UK exploitation of intellectual property rights. In addition, the profits from a trade or business carried on in the UK by a non-resident will usually constitute UK source income. However, if the non-resident (eg the putative offshore company) trades through a UK nominee or agent there can be no liability to UK tax other than on UK source income.

It should be noted, however, that these UK arrangements do not in any way alter any liability to taxation in other jurisdictions, which may well have their own rules affecting the trading operations of the principal.

The Problem

Notwithstanding the formal UK tax status of an English registered nominee company, some difficulties have begun to arise. In the typical agency/principal arrangement there is provision for agency fees of about 5% on invoice value. In recent times the UK Revenue has been taking the position that they will be unable to issue tax residency certificates to such companies. The Revenue’s position seems to be that they do not feel that nominee or agency companies are properly resident in the UK for all taxation purposes. Indeed, it has been suggested that instead of using an agency company, foreign tax payers should rather use a UK-resident service company, and that the service charges should be based on arms’ length principles. In practice the Revenue seem to be indicating that fees of about 20% on invoice value need to be charged by such service companies if transfer pricing issues are to be avoided.

A Possible Alternative

Iceland is a small European country (see fact file), which is located in the central part of the North Atlantic. It is not part of the EU but is part of the European Economic Area (EEA), as well as NATO and the OECD. The Icelandic economy is one of the best performing in the Western World, with a GDP per capita of US$26,000 (UK - US$19,000). It has 24¹ double taxation treaties (including ones with the USA and the UK)². The legal system is broadly based on Danish Law but English is very widely spoken by professional advisers, many of whom have advanced degrees from the US or UK universities.

The most commonly used commercial vehicles is the EHF (limited liability company) but SLF (limited partnership), and SFs (general partnerships) also exist. Incorporation is usually available in 24 hours for all types of companies. Furthermore, all Icelandic registered companies are deemed to be resident in Iceland, and all companies lawfully registered in Iceland are entitled to a tax residency certificate, unlike the UK where such certificates appear to be discretionary.

If an Icelandic company (an EHF) is acting as a non-disclosed agent, then it will only be taxable on its agent’s commission. It is worth noting also that there are no general transfer pricing rules in Iceland . Nevertheless when considering international transactions, it is wise to take account of general international transfer pricing guidelines. In this regard it should be pointed out that the Icelandic Ministry of Finance has confirmed in many rulings a 5% remuneration requirement to the head offices of Swiss branches, where the only profits of the company is a branch source of income. Accordingly, by analogy it is likely that a 5% commission rate for an Icelandic nominee or agency company would probably be acceptable to the Icelandic Tax Authorities.

Furthermore, it should be noted that provided the agency service is sold to an entity (eg a Jersey exempt company), which is neither domiciled nor has a permanent establishment in Iceland, then any services provided will either be exempt from declared turnover for VAT purposes or, alternatively, the principal will be repaid any VAT on the same day that the agent is required to pay it.


Iceland is a new and interesting jurisdiction for the international tax planner to consider. It is well developed professionally, is relatively easy to visit (3½ hours from London / 4½ hours from New York), and it also has a number of very useful double taxation treaties. Furthermore, it seems clear that Icelandic non-disclosed agency companies are automatically entitled to taxation residency certificates. In addition, the Icelandic limited partnerships and general partnerships may be fiscally transparent (as with the UK)³ so, provided there is no Icelandic source of income or a permanent establishment, then considerable planning opportunities must exist.

¹ The Nordic treaty applies to, Denmark, Norway, Finland and Sweden.
² Treaties with Italy and Ireland are not yet in force.
³ Upon registration of an SF or an SLF it should be decided whether the company will be transparent or not.

Mr E L Bendelow, Chairman of Basel Holdings Limited
Vala Valtysdottir, Attorney at Law, Taxis, Reykjavik

Edmund (Ben) Bendelow is the Chairman of Basel Holdings Limited he is a specialist in international wealth management and estate planning. His clients include high net worth individuals, private and public corporations, international financial institutions and governments. He is particularly interested in estate planning for multi-resident individuals and in the developing role of E-Commerce in the international business world.

He received his BSc from the University of Wales and his MBA from the University of Exeter. He is also the Honorary Consul for the Republic of Iceland in Jersey, and a former member of the Government of Jersey’s Public Services Audit Committee. He is a member of several professional bodies, including the Society of Trust and Estate Practitioners and the International Tax Planning Association. He is also an Associate of the American Bar Association.

VALA VALTYSDOTTIR, is a partner in the Law Firm of Taxis Attorneys. Today, the bulk of international companies engaged in business ventures in Iceland, draw on the know-how and service provided by Taxis Attorneys when it comes to tax advice, establishment of subsidiaries and related legal consulting. The main objectives of the firm are to provide its international clients with quality professional service relating to inward investments in Iceland and all other advice and assistance they need on the Icelandic business environment.

Mrs. Valtysdottir was admitted to the Icelandic Bar, March 1997. She graduated from the University of Iceland, School of Law, Reykjavík, Iceland. Cand. Jur. (JD) in May 1989. She is a Member of the Tax Committee of the Icelandic Chamber of Commerce. Previously she worked at the Internal Revenue Directorate as Head of the VAT office and later as tax advisor at Ernst & Young and KPMG in Iceland. Her current professional focus areas are Domestic and International Tax Law & Corporate Law.


Population in the year 2000 283,361 (UK - 60,114,000)
Geographical Area 103,00 km² (UK - 243,000 km²
Government Republic Parliamentary Democracy
International Organisations NATO, EEA, OECD, UN  
GDP in the year 2000 US$30,900 (UK - US$27,720)