Faroes focus: Innovation and pragmatism

Tax becomes less taxing?

One piece of good news for Bakkafrost and the other Faroese fish farmers was the announcement in January of reforms for the island’s salmon tax regime.

As Ragnar Nystøyl, Chief Analyst with consultants Kontali, says: “The Faroes ’market fee’ or ’harvest fee’ has changed three or four times over the past few years.”

Broadly, the Faroes salmon tax was based on revenue rather than corporate profits, taking into account market pricing and later also production costs. Rather than rely on market prices as reported by the farmers, Norway’s Fish Pool Index – which reflects spot market prices achieved by a panel of Norwegian exporters – was used as a benchmark.

The percentage basis for tax levied went up and down on a sliding scale depending on the market price, and when salmon prices were riding high, this could be as much as 20%.

As Nystøyl explains, the cost element of the calculation was based on companies’ audited accounts. As an indicator, this lags behind the price index, so when both prices and costs were rising steeply, as in the past two or three years, farmers found themselves losing out.

Another factor, he says, is that Norway forbids the export of “production grade” salmon – that is, those that are good enough for fillets but not for export as whole fish. The increasing proportion of production grade fish in Norway’s total output – because of problems like winter wounds – means that the Fish Pool Index reflected the price of superior grade fish only rather than the average value for salmon on the market.

And because the DKK has fallen against the Norwegian kroner, the high reference price also works against the Faroese farmers.

Bakkafrost’s Regin Jacobsen says of the previous tax regime: “It had a negative impact on our competitive position, especially on our ability to take on long-term contracts.”

The new system, announced in January, limits the revenue-based element of the tax to a maximum of 7.5%. A new profit-based element has been introduced, adding 12% to the Faroes’ standard corporate tax rate of 18%. This supplementary rate only applies, however, to marine activities – ie raising salmon in saltwater – and not to smolt production, service vessels, feed sales or value added products/processing.

Regin Jacobsen says: “The new system is better and gives us some competitiveness. It also has the  support of a broad [political] coalition. The main opposition parties have agreed and have committed not to make changes for several years to come.”

So will the Faroes salmon industry pay less tax now? Ragnar Nystøyl says: “That’s a tricky question. As analyst, I think so but there are a lot of ifs and buts. For example, it will depend on what happens to the salmon price this year.”

Kontali expects an increase in the supply of salmon this year, and therefore a softening of the price.

Nystøyl observes: “The detail in the Faroes’ salmon tax is more pragmatic than the Norwegian tax, which is more detailed and bureaucratic.”

“Pragmatic” is probably a good way to describe the Faroes’ approach to fish farming and fisheries in general.

The Faroese have over the years shown the ability to think innovatively in response to challenges like fish diseases and reduce quotas for catch fishing. 

As the saying goes, necessity is the mother of invention; or, as Regin Jacobsen puts it: “When you are in difficulties, you find solutions.” 

Supporting cast

Fisheries and, increasingly, fish farming are key industries for the Faroes and part of the islands’ culture. Not surprisingly there is also a thriving industry supporting those sectors. Three examples show the depth of expertise in this small nation.

Vónin is a prominent name in the fishing and aquaculture industries. In the aquaculture sector, Vónin provides cutting-edge equipment for fish farming. This includes nets for fish cages, feeding systems and other essential accessories. The company’s aquaculture solutions are tailored to enhance productivity and ensure the wellbeing of the fish.

MEST Shipyard is a renowned maritime facility that specialises in the construction, maintenance and repair of various types of vessels. With a rich history and a reputation for excellence, MEST Shipyard offers a comprehensive range of services tailored to meet the needs of the maritime industry, including shipbuilding, repair and maintenance, naval architecture, structural engineering, and mechanical and electrical systems design.

On the research side, Firum has an international reputation as an institution with expertise in the ocean, aquaculture, agriculture and renewable energy. Its researchers have worked with and continue to collaborate with leading institutions throughout Europe.

For more Faroes news and features, see the Faroes Sector Focus on this website.