Jurisdiction overviewTax in Faroe Islands
Last reviewed: · by TaxProsRated editorial
Key points
TAKS (Faroese Tax Administration) runs the tax system under the Faroe Islands' autonomous fiscal framework within the Kingdom of Denmark. Personal income tax is progressive at four state bands (15% / 25% / 32.5% / 42.5%) plus municipal tax, giving a combined top rate of approximately 62–63%. Corporate tax is 18% — lower than mainland Denmark's 22%. MVG (VAT equivalent) is 25%. The Faroe Islands opted out of the European Economic Community in 1973 and is not an EU member, not in the Eurozone, and not in Schengen. The Faroese Króna (FOK) circulates at 1:1 parity with the Danish Krone (DKK). Around 50 double tax agreements are accessible via the Kingdom of Denmark framework.
Who is the tax authority?
TAKS — Faroese Tax Administration — operates under the government of the Faroe Islands (Landsstýri). The Faroese parliament (Løgting) enacts tax law; TAKS administers it independently from Skattestyrelsen in Denmark. That separation matters: rules, rates, and forms are Faroe-specific, not Danish.
The primary statutes are the Faroese Income Tax Act and the MVG Act (Meirvirðisgjaldslóg — the VAT-equivalent statute). Disputes go through Faroese administrative review channels, not Danish courts in the first instance.
The Kingdom of Denmark has three constituent countries: Denmark (mainland), the Faroe Islands, and Greenland (GL). All three share the same head of state and foreign-affairs representation, but each runs its own domestic fiscal framework. Faroese tax law is not Danish tax law. Greenlandic tax law is not Faroese tax law. Do not apply mainland DK rates or filing rules here.
What is the tax year and when are returns due?
The Faroese tax year is the calendar year (1 January to 31 December). Individual personal returns are due 1 May for the prior year. Corporate returns are due 30 September. MVG returns are filed quarterly for most registered traders.
Who counts as a Faroese tax resident?
A person is a Faroese tax resident if physically present in the Faroe Islands for 183 days or more in the tax year, or if permanently settled there (bopæl equivalent under Faroese law). Residents pay tax on worldwide income. Non-residents pay tax only on Faroese-source income.
The Faroe Islands operate a separate residency test from mainland Denmark. Becoming a Danish tax resident does not automatically make a person a Faroese tax resident, and vice versa. Cross-border workers moving between the islands and mainland Denmark need to assess residency under both frameworks.
What are the personal income tax rates?
Faroese personal income tax uses four progressive state bands, with municipal tax (kommunuskattur) levied on top. Municipal rates typically add 19–22%, giving a combined top rate of approximately 62–63%.
| Faroese income (DKK) | State tax rate |
|---|---|
| Lower band | 15% |
| Second band | 25% |
| Third band | 32.5% |
| Top band (approx. above DKK 500,000) | 42.5% |
| Plus municipal tax (kommunuskattur) | ~19–22% |
How does corporate tax work?
Faroese corporate income tax (CIT) is a flat 18% on taxable profits. This is four percentage points below mainland Denmark's 22% selskabsskat rate — a genuine competitive difference that matters for cross-Kingdom group structuring.
Flat rate on taxable profits for companies resident in the Faroe Islands. Covers fisheries operations, Atlantic Airways subsidiaries, financial services, and general commercial entities.
Selskabsskat applies to Danish-mainland companies. Faroese entities are NOT subject to this rate. The 4-point gap applies only to correctly constituted Faroese resident companies — not to Danish companies with Faroese operations.
Withholding tax on dividends paid to non-resident shareholders is 35% at the headline rate; treaty partners receive reduced rates via applicable Kingdom of Denmark DTAs where Faroese-specific protocols extend coverage. Pillar Two global minimum tax has not yet been transposed at the Faroese level — Denmark transposed via Minimumsbeskatningsloven from 31 December 2023, but that Act applies to mainland Denmark, not to the autonomous Faroese fiscal framework.
What is the MVG rate and how does indirect tax work?
MVG — Meirvirðisgjald — is the Faroese VAT equivalent. The standard rate is 25%, matching Denmark's Moms rate. MVG is levied under the Faroese MVG Act, not under Danish or EU VAT law.
| MVG rate | Applies to |
|---|---|
| 25% | Standard rate — most goods and services |
| 0% | Exports (zero-rated, not exempt) |
| Exempt | Financial services, healthcare (standard VAT-system exemptions) |
MVG registration is mandatory once annual taxable turnover passes the statutory threshold (verify current threshold at taks.fo — it is set by Faroese regulation, not by EU VAT Directive thresholds). Quarterly MVG returns apply to most registered traders.
Because the Faroe Islands is not in the EU, the EU OSS (One Stop Shop) reverse-charge and distance-selling rules do not directly apply here. Businesses selling digital services into the Faroe Islands deal with Faroese MVG rules, not EU VAT rules.
What is the Faroese Króna and how does currency work?
The Faroese Króna (FOK) is the locally issued currency of the Faroe Islands. It is pegged 1:1 to the Danish Krone (DKK) and is fully convertible with DKK. Both currencies circulate in the Faroe Islands — DKK is the formal monetary unit, FOK banknotes are locally issued at the same face value.
Dual circulation — both currencies valid tender in the Faroe Islands
FOK banknotes are accepted only within the Faroe Islands. DKK banknotes circulate freely. Outside the islands, exchange at 1:1 parity with DKK. The Faroe Islands are not in the Eurozone — neither FOK nor DKK is EUR. Financial reporting in Faroese entities typically uses DKK as the functional currency.
How are cryptoassets taxed?
The Faroe Islands has no dedicated cryptoasset tax framework. Finanstilsynet — the Danish Financial Supervisory Authority — exercises oversight over financial activity in the Kingdom of Denmark, including the Faroe Islands on matters under Kingdom-level regulation. Where cryptoasset gains are declared by Faroese residents, they fall under existing income-tax categories administered by TAKS.
No Faroe-specific crypto law exists. Finanstilsynet (Kingdom-level) oversight applies. Gains declared by Faroese residents are treated under general income-tax principles by TAKS. Practitioners should verify the most recent TAKS guidance at taks.fo before advising clients with active cryptoasset positions.
What is the treaty network?
The Faroe Islands accesses approximately 50 double tax agreements via the Kingdom of Denmark framework. Denmark's DTA network is extensive — roughly 85 treaties — but not all extend to the Faroe Islands on identical terms. Some Kingdom DTAs have Faroese-specific protocols; others apply the DK terms unmodified. The Nordic Tax Convention (multilateral, covering DK, SE, NO, FI, IS, FO) is the most directly applicable regional treaty.
The Faroe Islands has not separately ratified the OECD Multilateral Instrument (MLI). Where MLI modifications apply to Kingdom of Denmark treaties, their extension to the Faroe Islands depends on whether the Faroese-specific protocols adopted the modification. Practitioners should check treaty text and TAKS guidance for each bilateral pair.
Where does the Faroe Islands sit in the Nordic cohort?
The Faroe Islands sits in the Kingdom of Denmark + Nordic grouping — a North Atlantic self-governing territory with Nordic institutional ties but distinct from both the EU bloc and the EFTA bloc.
Common pitfalls and penalties
Foreign individuals and companies regularly encounter the following traps when operating in or through the Faroe Islands:
Faroese rates, bands, thresholds, and forms are set by the Løgting and administered by TAKS. Danish Skattestyrelsen has no jurisdiction here. Applying mainland DK rules — including the Kildeskatteloven or Selskabsskatteloven — to Faroese residents or companies is the most common practitioner error.
Both the Faroe Islands and Greenland are self-governing constituent countries of the Kingdom of Denmark. They are distinct from each other and from mainland Denmark. Faroese tax rules do not apply in Greenland, and Greenlandic rules do not apply in the Faroes.
The Faroe Islands opted out when Denmark joined the EEC in 1973. EU VAT Directive, Parent-Subsidiary Directive, Interest-Royalties Directive, ATAD, and EU State Aid rules do not automatically apply. The Faroe Islands has separate fisheries agreements with the EU but is not subject to the EU single market framework.
Faroese Króna banknotes are not accepted outside the islands. Banks convert FOK to DKK at 1:1 parity, but you cannot spend FOK notes in Copenhagen. Cash management for cross-Kingdom entities needs to account for this practical limit.
The 18% CIT rate applies to Faroese resident companies. It does not benefit a Danish company that merely operates in the Faroe Islands via a branch or agency. Entity structure determines rate access. Incorrect entity classification is the primary trap in cross-Kingdom group structuring.
Fisheries account for roughly 95% of Faroese exports. Salmon farming, mackerel, cod, and herring operations carry sector-specific licensing, quotas, and excise considerations administered under Faroese law, not Danish or EU frameworks. Foreign investors in the sector need Faroese legal counsel, not Danish mainland practitioners.
Denmark implemented Pillar Two global minimum tax from 31 December 2023. That Act (Minimumsbeskatningsloven) does not cover the Faroe Islands. MNE groups need to assess Faroese entities separately — no 15% floor applies at the Faroese level as of this writing.
The Faroe Islands is not part of the Schengen Area. Goods moving between the Faroes and EU member states — including Denmark — are subject to customs controls. Goods-in-transit models built on the Schengen free-movement assumption do not work here.
When should you talk to a Faroese tax pro?
Some Faroese returns are straightforward for employed residents using TAKS's online services. Many situations are better handled by a credentialed Faroese practitioner:
- Income reaches the top state band (42.5% state, combined ~62%)
- Moving between the Faroe Islands and mainland Denmark — dual residency risk
- Operating a company in the Faroe Islands vs. a Danish branch
- Fisheries, salmon farming, or maritime sector work under Faroese licensing
- Cross-border dividends, royalties, or interest subject to withholding at 35%
- Received a TAKS audit notice or amended assessment
- MNE group assessing Pillar Two exposure at the Faroese level
- Cryptoasset activity requiring classification under TAKS income-tax categories
Find vetted Faroe Islands practitioners through the directory below.
This page is general information. It is not personal guidance for your specific situation. Tax rules change. Always verify current figures at taks.fo or with a licensed Faroese practitioner before filing.
Frequently asked
Who is the Faroe Islands tax authority?
TAKS — the Faroese Tax Administration (Skattastýrið) — administers tax under the autonomous Faroese government (Landsstýri). The Faroese parliament (Løgting) enacts Faroese tax law. TAKS is entirely separate from Danish Skattestyrelsen. The portal is taks.fo.
What is the Faroe Islands corporate tax rate?
18% flat — four percentage points lower than mainland Denmark's 22% selskabsskat. The 18% rate applies to companies resident in the Faroe Islands under Faroese law. Withholding on non-resident dividends is 35% at the headline rate, with treaty rates available via the Kingdom of Denmark DTA network where Faroese protocols extend coverage. Pillar Two has not been transposed at the Faroese level.
What is the Faroe Islands VAT rate?
MVG (Meirvirðisgjald) is 25% standard rate under the Faroese MVG Act. Exports are zero-rated. MVG is not subject to EU VAT Directive rules — the Faroe Islands is not in the EU. Quarterly returns apply to most registered traders.
Is the Faroe Islands in the EU?
No. The Faroe Islands opted out when Denmark joined the European Economic Community (EEC) in 1973. The islands are not in the EU, not in the Eurozone, and not in the Schengen Area. EU directives — including the VAT Directive, Parent-Subsidiary Directive, Interest-Royalties Directive, and ATAD — do not automatically apply. The Faroes have a separate fisheries agreement with the EU but are outside the EU single market.
What is the Faroese Króna?
The Faroese Króna (FOK) is locally issued at 1:1 parity with the Danish Krone (DKK). Both currencies circulate in the Faroe Islands. FOK banknotes are accepted only within the islands — outside, they convert to DKK at par. The Faroe Islands is not in the Eurozone; neither FOK nor DKK is EUR.
How does the Faroe Islands relate to Denmark and Greenland?
The Kingdom of Denmark has three constituent countries: Denmark (mainland), the Faroe Islands, and Greenland (GL). All three share a head of state and foreign-affairs representation. Each runs its own domestic tax framework — Faroese tax law is not Danish tax law, and Greenlandic tax law is not Faroese. TAKS administers tax for the Faroe Islands; Skattestyrelsen covers mainland Denmark; Greenland has its own tax agency.
What personal income tax rates apply in the Faroe Islands?
Faroese state PIT runs four progressive bands: 15% / 25% / 32.5% / 42.5%. The top state band applies at approximately DKK 500,000 and above. Municipal tax (kommunuskattur) of approximately 19–22% applies in addition, giving a combined top rate of approximately 62–63%. Residents pay PAYE monthly via employer withholding.
How many tax treaties does the Faroe Islands have access to?
Approximately 50 DTAs are accessible via the Kingdom of Denmark framework. The Nordic Tax Convention covers Denmark, Sweden, Norway, Finland, Iceland, and the Faroe Islands directly. Not all Kingdom of Denmark DTAs extend to the Faroe Islands on identical terms — some have Faroese-specific protocols. The Faroe Islands has not separately ratified the OECD Multilateral Instrument (MLI).
What is TAKS in the Faroe Islands?
TAKS is the Faroe Islands tax administration - the authority Faroese residents and businesses deal with for registration, filing, and collection. It runs the islands own direct-tax system, which operates separately from the Danish system under the Kingdom framework, alongside the Faroese indirect-tax rules.
Major tax firms in Faroe Islands
Verified directory of the largest accounting + tax practices operating in Faroe Islands. Listings are entity-level reference cards — claim flow is open to firm representatives.
- Big 4
KPMG Føroyar
- Big 4
PwC Føroyar
- National
BDO Faroe Islands
Find a tax pro in Faroe Islands
Browse credentialed pros serving Faroe Islands — filter by specialty, language, and credential type.
Browse the Faroe Islands directorySources
The figures, dates, and rules on this page are sourced from the documents listed below. Where two sources disagree, both are listed.
- TAKS (Faroe Islands Tax Administration) · accessed
- Government of the Faroe Islands · accessed
- Government of the Faroe Islands / Kingdom of Denmark · accessed
- PwC Worldwide Tax Summaries · accessed
Important disclaimer
Informational only — not tax advice. This page summarises publicly available information about tax in Faroe Islands as of July 2026. Tax laws change, individual circumstances vary, and the application of any rule depends on your specific facts.
TaxProsRated does not provide tax, legal, accounting, or financial advice. Before acting on anything you read here, consult a qualified tax professional licensed in your jurisdiction (in the US: CPA, Enrolled Agent, or attorney; in the UK: CIOT- or ATT-qualified adviser; in Australia: TPB-registered tax agent; elsewhere: a locally-licensed equivalent). TaxProsRated, its operators, and its contributors disclaim all liability for action taken in reliance on this page.