The basic rule is that you pay tax where you work and earn an income. You do not have to pay tax on the same income in two different Nordic countries. This is regulated by the Nordic double taxation agreement, which covers Denmark, the Faroe Islands, Finland, Iceland, Norway and Sweden.
If you are a citizen of another Nordic country, you do not need to apply for a work or residence permit. Nordic agreements ensure that Nordic citizens are free to move between the Nordic countries. However, everyone who works in the Faroe Islands is subject to either limited or full taxation.
What will I pay in tax?
Overall, a distinction is made between limited and full tax liability.
You have limited tax liability if you work in the Faroe Islands without moving your registered address to the country. However, your stay must not in this case exceed 180 days in a 12-month period. If you stay in the Faroe Islands for more than 180 days in a 12-month period, you are fully taxable.
In addition to the national tax, everyone who is liable to taxation in the Faroe Islands must pay municipal tax, which varies from municipality to municipality.
If you are fully taxable in the Faroe Islands and have an income or other economic activity in another Nordic country, and are therefore liable to taxation on the income/activities in both countries, your tax will be settled under the double taxation agreement.
Contact the Faroese tax authority, TAKS, for further information.
If your stay in the Faroe Islands is extended, or if for other reasons you go from limited to full tax liability, your full tax liability will apply from your first day’s stay in the Faroe Islands.
In order to receive a salary and pay your tax in the Faroe Islands, you must open a bank account with one of the four Faroese banks: Bank Nordik, Betri Banki, Norðoya Sparikassi or Suðuroya Sparikassi.
Limited tax liability
If you have limited tax liability, you pay 42% of your A-income (income taxed at source) in tax. You are not obliged to pay parental contributions, unemployment contributions or health insurance contributions.
On the other hand, you are not entitled to receive payments from these social welfare schemes.
Persons subject to limited tax liability are not exempt from paying labour market contributions, but pay 3% of their taxable income.
In some cases, if you have limited tax liability, you may take out personal insurance for some of these social benefits. Contact the relevant scheme if you wish to know more about how to take out such insurance, and what rights you have in that case.
If you have limited tax liability, you are also not entitled to deductions in tax or interest subsidy.
If you are employed by FAS (the Faroe Islands National and International Ship Register) or BareBoat ships, you pay 35% in tax.
Full tax liability
If you are fully taxable, you must declare all your earnings in the Faroe Islands and abroad in your tax returns.
Tax on A-income (income taxed at source) is around 40%, depending on your income and which municipality you live in.
In addition, you must also pay:
- 0.71% in parental contribution if you are aged between 16 and 67 and are fully taxable in the Faroe Islands. For more information, see: https://www.barsil.fo/en/
- 3% in “samhaldsfasti”/labour market contribution
- 1.25% to ALS, which is the unemployment benefit fund
- DKK 175 per month, plus 0.60% of your taxable income to Heilsutrygd, which is the public health insurance scheme
- DKK 150 per month as a charge to the public broadcaster, Kringvarp Føroya (Kvf). (The amount varies slightly. For more information, see further down this page.)
In the national taxation table you will find an overview of what you have to pay in national tax.
At TAKS, you can find an overview of the municipal tax rates.
The national tax rates also apply to self-employed persons. Contact TAKS if you wish to know more about starting a business.
Students and Faroes deduction
Faroese students living in Denmark may be entitled to receive the so-called Faroes deduction.
The conditions for receiving Faroes deduction are:
– You were resident in the Faroe Islands before moving to Denmark.
– You are in Denmark in order to study.
– You did not have a qualifying education before moving to Denmark.
– You have not lived in Denmark for more than 6 months before commencing your studies.
What deductions am I entitled to?
Child allowance is granted in both national and municipal taxes. The size of the allowance depends on the child’s age. If the child is less than 7 years old, the national tax allowance is DKK 9,200 per year. If the child is aged between 7 and 17 years, the allowance per child is DKK 6,600 per year. (2020)
Municipal taxes vary from municipality to municipality.
Child allowance is granted in both national and municipal taxes. The size of the allowance depends on the child’s age. If the child is less than 7 years of age, the allowance is DKK 9,200 per year.
If you are fully liable to tax, you have the right to interest subsidy to help you to pay the interest on your debt for a house that you own and live in in the Faroe Islands.
From 2018 on the subsidy has amounted to 35% of the interest, but the maximum amount is DKK 35,000 per year. However, the percentage rate changes periodically, so inquire at your bank or TAKS for further information on the interest subsidy.
Taxation on pensions
In the Faroe Islands, a distinction is drawn between the public pension received by all pensioners and early retirement pension, which is a labour market saving that most people in the Faroese labor market have, and which is generally arranged through the unions.
Unlike in the other Nordic countries, early retirement pension and other pensions paid out in the Faroe Islands are taxed prior to payment.
Pensions from other Nordic countries are taxed in the country from which the pension comes. However, under an agreement between the Faroe Islands and Denmark, there is a special rule that pensions are taxed in the country of residence. Pensions from a Nordic country that are not taxed in the country in question are taxable in the Faroe Islands.
If you have a rental income from Faroese property, it will be taxed in the Faroe Islands, but there are no taxes on real estate as such (such as property tax and property value tax).
Rental income from real estate abroad is taxed abroad, but must be disclosed in your tax returns, and will entitle you to a tax deduction.
In the case of real estate belonging to persons resident outside the Faroe Islands, rental income on real estate in the Faroe Islands, which is paid to persons resident outside the Faroe Islands, is taxed in the Faroe Islands.
If you wish to know more about tax in the Faroe Islands, contact the Faroese tax authority, TAKS.
If you live in the Faroe Islands and are aged between 24 and 66, you must pay a charge of DKK 150 per month to the public broadcaster, Kringvarp Føroya (Kvf). If you are aged more than 67, you pay DKK 50 per month. Persons aged 23 or under do not pay the charge.
You pay a charge to Kvf if you are fully taxable in the Faroe Islands. However, you do not pay the charge if you are a student and living abroad, but are fully taxable in the Faroe Islands.
The Kvf charge is levied by the tax authority, TAKS.
If you have ‘A’ income (income taxed at source), the Kvf charge will be automatically deducted from your salary every month. If you receive a state educational grant while you are living in the Faroe Islands and are aged between 25 and 66, the Kvf charge is automatically deducted from your monthly grant payment.
If you do not have A-income, you will be billed for the charge by post each month.
Companies, organisations, institutions and public authorities pay the Kvf charge once per month in proportion to their payroll costs.
If you are a member of the Faroese Evangelical Lutheran Church you pay 0.6% of your income taxed at source in church tax. If you are not a member of the Faroese Evangelical Lutheran Church, you must inform TAKS if you do not wish to pay this tax.
Customs regulations in the Faroe Islands
At TAKS you will also find information on the applicable customs regulations.
- Bringing goods into the Faroe Islands
- Customs regulations for travellers to and from the Faroe Islands
Contact TAKS for information on the rules applying to furniture and household effects in the case of relocation to the Faroe Islands.
If you have any questions, please fill in our contact form.
NB! If you have questions regarding the processing of a specific case or application, or other personal matters, please contact the relevant authority directly.