Guide to Global Payroll Management - 2020 - A-30

Guide to Global Payroll Management
country is exempt from the other country's income tax. This exemption does not apply to
payments for services performed in the other country by a resident of that country who is
also its citizen, or who did not become a resident of that country only to perform the services. The exemption also does not apply to payments for services in connection with a business carried on by the country paying the compensation or its political subdivisions, statutory bodies, or local authorities [Art. 16].

ICELAND

ICELAND
Personal services income-employees
Wages, salary, and similar compensation that a resident of the U.S. or Iceland receives
for performing labor or personal services as an employee in the other treaty country is
exempt from the other country's income tax if:
*

the employee is in the other country for no more than 183 days during the
fiscal year or tax year,

the compensation is paid by or on behalf of an employer that is not a resident of the other country, and

the compensation is not borne by a permanent establishment that the
employer has in the other country [Art. 14].

Personal services income-independent contractors/selfemployed
Income that a resident of the U.S. or Iceland receives for performing personal services in
an independent capacity in the other treaty country is subject to the provisions of the treaty
governing business profits. In general, the business profits of an enterprise in one treaty
country are taxable only in that country unless the enterprise carries on business in the
other treaty country through a permanent establishment situated in that country (and if this
is the case, the business profits of the enterprise may be taxed by the other treaty country
only to the extent attributable to the permanent establishment in that country [Art. 7].

Professors, teachers, and researchers
An individual who was entitled to benefits under Article 21 of the prior treaty at the time
the current treaty between the U.S. and Iceland entered into force (December 15, 2008) is
"grandfathered," and continues to be entitled to the benefits available under the prior treaty
until such time as that individual would have ceased to be entitled to benefits if the prior
treaty was still in force.
Under Article 21 of the prior treaty, a treaty country resident who is temporarily in the
other country at the invitation of the other country's government, a university, or other recognized educational institution primarily to teach or engage in research, or both, is exempt
from the other country's income tax for up to two years on the teaching or research income.
This exemption does not apply to income from research carried on mainly for the private
benefit of any person rather than in the public interest [Art. 27].

Students trainees, and grant recipients
A treaty country resident who is temporarily in the other treaty country primarily to study
at a university or other recognized educational institution, obtain professional training, or

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Guide to Global Payroll Management - 2020

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