Economic Overview
The Faroe Islands is a small open economy where the fishing industry for decades has been the major driver. The Faroese fishing industry is diversified and in constant development.
The industry covers a range of various areas, spanning over e.g. pelagic fishery, demersal fishery, in Faroese as well as distant waters, and the fish processing industry. Furthermore, the Faroese fish farming industry has gained cutting-edge know-how in the field of aquaculture and is one of the most sustainable and profitable aquaculture industries in the world.
Fishing and its related industries account for around 20 per cent of the gross value added to the Faroese economy. The fish industry employs approximately 15 % of the labour force.
Main sectors in Faroe Islands
FISH FARMING
Fish farming in the Faroe Islands has emerged into the second largest export industry.
In recent years there has been a clear trend towards fewer companies controlling a large share of the licences for salmon and trout farming. Most of the farms are vertically integrated controlling the entire process from egg to customer.
OTHER FOOD PRODUCTION
The Faroe Islands maintain a relatively high degree of self-sufficiency in local food production.
The sheep production is based on outdoor grazing all year round with a total stock of about 70,000 sheep. This corresponds to around 60 percent of the total demand.
There is enough dairy cattle to satisfy all domestic milk needs, as well as many small potato crops are cultivated by private households for their own use.
Furthermore, the coastal hunting of the abundant and regularly occuring pilot whales for their meat and blubber is an important food supplement, especially in some areas.
CONSTRUCTION
During the last 30 years many roads, tunnels and harbours have been built or upgraded all over the country. Also many public buildings and private houses have been built.
TOURISM
Tourist accommodations and the number of travelers by plane and ferry has increased substantially in recent years.
The National Tourist Council has recently invested new and more focused resources into branding and marketing the Faroe Islands as a tourist destination.
OIL
Since the beginning of the century the Faroe Islands have been engaged in exploring the potential for oil production in the Faroese maritime area. Some oil has been found but so far it has not been of commercial quantities. Oil reserves have been located in the UK area near the maritime border with the Faroe Islands.
Taxes in Faroe Islands
Taxation on personal Income
All individuals who are living in the Faroe Islands must pay tax on all personal income.
Personal income is collected on wages, interest, gifts and inheritance. Personal income tax is paid to the government, the municipality and in most cases also to the church.
The total government and municipal tax paid on regular taxable income cannot exceed 50 %.
Tax system
All individuals who have a Faroese ID number are automatically registered in the Faroese tax system. All remuneration has to be paid out through a financial institution which withholds taxes and duties for social funds.
Each tax payment is based on the income up to the date of the latest wage payment converted into annual income.
Wage earners who only receive wages from Faroese employers receive a completed tax sheet after each year from the Tax Administration. If the completed tax sheet is incorrect, the tax payer has to file a tax return. Self-employed persons are obliged to keep accounts and must submit a Tax Return along with their accounts.
Taxes deducted from your income may have been over or underestimated. In these cases the tax payer will receive a payment from the Tax Administration or will be required to pay additional taxes.
Government tax
Government tax is based on a progressive system, meaning that the tax rate rises as the amount subject to taxation rises. No tax is paid on the first DKK 65,000 of the taxable income. A fixed amount and a tax rate increasing from 15 to 30 per cent is paid on the remaining income.
A person earning between DKK 330,000 and DKK 800,000 pays DKK 44,500 of the first DKK 330,000 and 25 percent of the remaining income.
A deduction in the government tax is made for each child under the age of 18. The deduction is DKK 9,200 for children under 7 years and DKK 6,500 for older children.
Capital Gain Taxation
All capital gains income earned by Faroese residents, irrespective of source, is subject to Faroese taxation.
Interest on deposits in Faroese and foreign banks is taxed as capital gains income. Tax on interest on deposits in a Faroese bank is withheld at source by the bank.
Individuals with other capital income than interest from deposits in Faroese banks have to file a capital income tax return.
The tax rate on capital gains income is 35 percent. Capital gains income from foreign sources may be subject to tax treaty relief.
Pension tax
Contributions to pension plans are taxed at source at 40 percent before the net payment is transferred to the insurance company or bank. No tax is charged when pensions are paid out.
VAT
Value added tax (VAT) is a consumption tax on sales and is levied whenever a sale of goods and services occurs throughout the distribution chain. VAT is also levied on the import of goods. A standard rate of 25 percent is applied on most goods and services.
Some goods and services are exempt from VAT. Among these are certain cultural activities and sports, personal transportation, financial and insurance transactions and literary, compositional and other artistic activities.
Investing in Faroe Islands
The process of establishing a business in the Faroe Islands is both quick and easy. The Faroe Islands is geographically located in the middle of the Atlantic Ocean, yet it merely takes a 1-2 hour plane ride to reach the neighboring countries of Denmark, Iceland, Norway or the United Kingdom.
The Faroe Islands has a low corporation tax at only 18%. The Faroe Islanders are a seafaring people and the maritime expertise of the Faroese is widely renowned.
Over the centuries, the Faroese have developed the skills necessary to make the most of the valuable resources of the North Atlantic, and the Faroe Islands export seafood to all six continents.
The marine eco-systems around the Faroe Islands are highly productive with a diverse abundance of marine species. A variety of fish stocks are utilized in Faroese waters, as well as from international waters and in other nations zones through fisheries agreements.
The clean, temperate oceanic waters and strong currents in the fjords around the Faroe Islands are ideal for fish farming and premium Salmon production. Many Faroese fish products have become renowned for their high quality, such as Faroese Cod, Langoustines and farmed Salmon.
The Faroese economy is ranked amongst the highest in the world based on GDP per capita.
The Faroese business sector is gradually becoming more and more diversified.
Important and promising industries include financial services, petroleum related businesses, shipping, maritime services, civil aviation, IT and telecommunications, tourism and creative industries. Some are already well established, while others are up-and-coming.