Faroe Islands agrees long term tax deal for salmon farmers

The Faroes tax agreement, which takes effect immediately, has been radically restructured and will remain in force for the next seven years (2032).

An announcement from Bakkafrost today said that between 1 August 2023 and 31 December 2024, the Faroese salmon industry paid a monthly revenue tax ranging from 0.5% to 20% of the sales value of the harvested fish, calculated using the FishPool Index prices rather than actual sales prices.

“The applicable tax rate (0.5% - 20%) has been dependent on the difference between the industry production costs and the Fish Pool Index prices.

As from 1 January 2025, the maximum revenue tax rate has been reduced from 20% to 7.5% and a special additional corporate tax rate of 12% is introduced on the taxable income, however this is limited to income from salmon farming at sea, not the full value chain. Bakkafrost says its salmon farming at sea is equal to its Faroese Farming segment.

From 1 January 2025, the revenue tax will be based on the SISALMONI index as price reference, replacing the FishPool index.

The SISALMONI or Sitagri Salmon index reflects a weekly spot price of 11 benchmarks for Fresh Atlantic Superior Salmon transported from Norway to Europe. SISALMONI is calculated on physical transactions taken from a panel of Norwegian salmon exporters.

The 11 benchmarks are divided into nine weight categories (from 1 to 9+ Kg), one grand weighted average and the 3-6Kg index. Sitagri Salmon Index 3-6kg accounts for 95% of the Fish Pool index. The benchmarks are calculated once a week on Tuesdays at 15.00 CET.

For the Faroes tax regime, the average production cost used to determine the applicable revenue tax rate has been changed to a simple average across the three salmon farming companies in the Faroes. Previously it was a harvest volume-weighted model. The production cost calculation includes:

• Cost of raw materials and auxiliary materials;
• Inventory changes;
• Other external costs;
• Employee costs; and
• Depreciations and amortisation.
   

The average production cost to be used for revenue taxation will be determined for one year at a time.

For 2025, it has been calculated to 44.77 Danish kroner per kg (about £5) and is based on the most recent audited annual reports (2023) from the Faroese salmon farming companies.

The production cost valid for revenue taxation in 2026 and 2027 will be consumer and feed price indexed, while being recalculated for 2028 using the most recent audited annual reports at that time. This sequence then continues in the years following.

On transition rules, the announcement said deferred taxes related to the biomass at sea per 31 December 2024 are accounted for using the production cost and only the ordinary corporate tax rate of 18%.

This ensures a limited impact on deferred taxes, at the time of introduction, by adding the 12% special corporate tax for salmon farming at sea.