Self-governing territory of the Kingdom of Denmark since 1948 (Home Rule), with its own tax legislation separate from Denmark; not an EU member and not part of the EU VAT area.
The Faroe Islands has held its own tax legislation, separate from Denmark's, since Home Rule was granted in 1948, and administers corporate profit tax and personal income tax through its own tax authority (TAKS) despite remaining part of the Kingdom of Denmark. The corporate profit tax rate is a flat 18%, well below both the Danish and OECD-average rates.
The income period for individuals follows the calendar year. For companies, the income period generally follows the accounting year, which may not exceed 12 months, though the first accounting year for a newly formed company can range from 6 to 18 months.
18% flat rate.
Progressive - national tax (from DKK 65,000/year) plus flat municipal tax (16-23% depending on municipality) plus church tax where applicable; non-residents/limited tax liability taxed at a flat 42%.
25% standard rate (matches Denmark's rate, though the Faroes set their own tax law independently under 1948 Home Rule).
An individual establishing a home in the Faroe Islands is deemed resident; an individual without a Faroese home can still be deemed resident under specific circumstances, including serving or permanently staying aboard a ship based in the Faroe Islands. A dual resident (also tax resident elsewhere) is taxed on worldwide income by the Faroe Islands if there is no double tax agreement with the other country; if a DTA exists, it determines residency via tie-breaker rules. A company is fully taxed in the Faroe Islands if registered there or if its place of effective management (assessed on where day-to-day management actually happens) is there. Faroese residents are taxed on worldwide capital gains income regardless of source, at a flat 35% rate on non-deposit-interest capital income.
A foreign company is subject to limited tax liability in the Faroe Islands where it carries out commercial activities through a permanent establishment there, per section 2 of the Faroese Tax Act; a foreign company's presence lasting more than 12 months requires formal registration with TAKS, including a description of Faroese operations and home-country registration documents.
The Faroe Islands is fiscally autonomous from Denmark, administering its own tax code (the Faroese Tax Act) independently of Danish tax law - Denmark's own well-documented CFC regime does not automatically extend to the Faroe Islands and should not be assumed to apply. Multiple detailed guides to the Faroese corporate tax system - which do cover other anti-avoidance measures such as thin capitalization in specific detail - describe no CFC-style attribution mechanism reaching into foreign subsidiaries of a Faroese parent. Given the territory's small scale and its low general corporate tax rate (18%) applied broadly to worldwide income of resident companies, this is a plausible design choice rather than an oversight, but confirm the current position directly with TAKS (the Faroese Tax Authority) or Faroese tax counsel before relying on it for a specific structure.
The Faroe Islands has a thin capitalization rule preventing deduction of the portion of interest expense paid to shareholders or other controlling parties where the underlying debt exceeds a 4:1 debt-to-equity ratio.
The Faroe Islands classifies entities under its own domestic tax legislation rather than offering an elective check-the-box system. As an autonomous territory of the Kingdom of Denmark with its own separate fiscal authority under 1948 Home Rule, the Faroe Islands is not automatically bound by Denmark's own CFC rules or Denmark's implementation of the EU Anti-Tax Avoidance Directive's anti-hybrid provisions, and no dedicated Faroese anti-hybrid mismatch regime has been identified; a reader should not assume Danish anti-hybrid rules extend to the Faroe Islands.
No domestic FBAR-equivalent regime requires Faroe Islands residents to separately disclose foreign financial accounts. The Faroe Islands is a CRS participating jurisdiction and exchanges financial account information with partner tax authorities, including the UK. US persons remain independently subject to FinCEN Form 114 (FBAR) and potentially Form 8938 regardless of the Faroe Islands' own rules.
Dividends distributed to a parent corporation situated in the Faroe Islands are exempt from the otherwise-applicable 18% dividend withholding tax, per FAS (a Faroese shipping/corporate registry authority). Whether a comparable exemption extends to capital gains on share disposals, or to dividends from a foreign subsidiary specifically, is not confirmed in accessible sources; confirm current treatment directly with TAKS before relying on this page for a specific structure.
The Faroe Islands maintains full double tax treaties covering corporate tax with Denmark, Iceland, and Norway (its closest Nordic partners), providing credit-based relief from double taxation within that network; a broader unilateral foreign tax credit mechanism outside this Nordic treaty group is not identified in accessible sources.
The Faroe Islands has entered into double taxation treaties with Aruba, Bermuda, the British Virgin Islands, the Cayman Islands, Denmark, Finland, Great Britain, Greenland, Guernsey, Iceland, India, the Isle of Man, Jersey, Northern Ireland, Norway, Switzerland, and Sweden, with the network continuing to expand. For dividends paid to shareholders resident in a country without a Faroese tax treaty, the domestic rate is 18%. The Faroe Islands and other Nordic countries also apply the Nordic multilateral tax convention to prevent double taxation between Nordic jurisdictions specifically.