Iceland and Saudi Arabia have entered their first income tax treaty, effective 1 January 2026, to prevent double taxation, promote investment, and set reduced withholding tax rates on dividends, interest, and royalties.
The income tax treaty between Iceland and Saudi Arabia entered into force from 1 January 2025.
Signed on 4 December 2024, the agreement aims to prevent double taxation and is expected to encourage trade and investment by addressing tax challenges, ensuring fair opportunities for investors, and enhancing economic cooperation between the countries.
The agreement covers Icelandic state and municipal income taxes, as well as Saudi Zakat and income tax.
Under the treaty, withholding taxes are set at 0% on dividends for states and recognised pension funds, 5% if a company holds at least 10% of capital for a year, and 10% otherwise. Interest is generally taxed at 5%, with exemptions for state and local governments, guaranteed loans, and independent financial institutions. Royalties are taxed at 5% for industrial, commercial, or scientific equipment, and 10% for all other cases.
The treaty applies from 1 January 2026.
Earlier, Saudi Arabia’s Council of Ministers approved the ratification of an income tax treaty with Iceland on 18 March 2025.
