Iceland Looks At ‘Exit Tax’ For Foreign Investors
Iceland appears to be looking to remove its capital controls early in 2015, but would, at the same time, impose an “exit tax” on those foreign investors who have been unable to retrieve their funds that were locked in after the country’s banks defaulted in 2008.
It is believed that those funds amount to about USD7bn, and the Icelandic Government fears that the removal of capital controls would result in a rapid depreciation of the Icelandic krona, and another financial crisis for the country, as the investors holding those funds sought to retrieve their deposits.
While discussions are continuing between the foreign investors (that consist, to a large part, in overseas hedge funds) and the Icelandic banking system, one of the options being considered to reduce the impact on the financial sector of ending capital controls is said to be a significant tax of up to 40 percent imposed on funds extracted from Iceland by any investor.
While other options are being considered that could result in a reduced exit tax of, for example, 25 percent and/or or a binding agreement under which the Government would allow a gradual rundown of the restricted funds, there is a concern in Iceland that some restrictions will have to be in position before capital controls are unwound.