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PR(10)20: Iceland amends its rules on taxation of capital gains from the sale of residential real-estate


On 24 March 2010 the EFTA Surveillance Authority closed a complaint against Iceland that it received in June 2006 concerning the taxation of capital gains from the sale of owner-occupied residential real-estate. Such capital gains are, in Iceland, subject to tax if the seller has owned the real-estate for less than two years.

According to
Article 17 of the Icelandic Act No. 90/2003 on Income Tax (Lög um tekjuskatt nr. 90/2003) a deferral of the taxation could be granted on the condition that, within two years, the gains were reinvested in comparable real-estate located in Iceland. If that real-estate was then kept for two years capital gains from subsequent sale of the property was tax exempt. It was also a condition that the taxable person was resident in Iceland. The Authority had earlier that same year opened an own initiative investigation on the same issue.

The Court of Justice of the European Union found similar requirements of national reinvestment contrary to the EC Treaty and the EEA Agreement in cases C-345/05 Commission v Portugal, and C-104/06 Commission v Sweden.

The Authority sent Iceland a letter of formal notice on 19 December 2007 and a reasoned opinion on 18 June 2008 concluding that the requirements of reinvestment in Iceland and residence in Iceland constituted restrictions to the free movement of workers in Article 28 EEA, the right of establishment in Article 31 EEA, and the free movement of capital in Article 40 EEA.

Iceland amended the relevant legislation with Act No. 164/2008, which entered into force on 23 December 2008. Now the tax deferral also covers reinvestment in residential real-estate in other EEA States, and residence in Iceland is no longer required. The Icelandic Government has also informed the Authority that the tax authorities have investigated how many tax payers had been denied deferral of taxation based on the previous legislation, reviewed their cases and refunded tax where appropriate. Based on this the Authority closed the case.

For further information, please contact:

Rúnar Örn Olsen
Senior Officer
Internal Market Affairs Directorate
(+32)(0)2 286 18 52


Brussels, 26 March 2010

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