Faroe Islands revamps salmon farming tax model: What it means for producers

by
Matthew Wilcox

Faroe Islands revise salmon farming tax model amid political consensus.

The Faroe Islands government, in conjunction with the opposition party Sambandsflokkurin, has introduced a revised taxation model for the salmon farming industry, set to remain in place until 2032. Effective January 1, 2025, the updated framework reduces the maximum revenue tax rate from 20% to 7.5% and introduces an additional corporate tax of 12%, applicable solely to marine farming operations.

The revenue tax will now be calculated using the SISALMONI index rather than the FishPool index, and average production costs will shift from a volume-weighted calculation to a simple average across the three Faroese salmon farming companies. For 2025, the average production cost has been set at 44.77 DKK/kg, based on 2023 audited financial data.

The revised model introduces a corporate tax of 30% for marine farming (18% standard corporate tax plus the 12% additional levy), while other activities, including smolt production and harvest operations, remain taxed at the standard rate.

Transition and Industry Adjustments

Deferred taxes related to biomass at sea as of December 31, 2024, will be calculated based on production costs and the standard 18% corporate tax rate. This provision seeks to mitigate immediate financial impacts from the new rules.

Previously, the industry had operated under a system where revenue tax rates fluctuated between 0.5% and 20%, depending on the gap between industry production costs and FishPool index prices. This volatility had led producers, including major player Bakkafrost, to reduce their reliance on fixed-price contracts and scale back value-added processing.

Implications for Producers

The revised framework is expected to reduce tax volatility, making revenue projections more consistent. However, the introduction of a higher corporate tax on marine farming raises questions about profitability, particularly for companies heavily reliant on these operations.

Bakkafrost, which accounts for a significant portion of Faroese salmon production, will see its Faroese Farming segment subject to the additional corporate tax. The broader implications for the industry, particularly for value-added product development, remain to be seen.

Background and Political Agreement

The changes follow a political debate over the fairness and stability of the previous tax regime. The government and opposition reached an agreement to implement the new model, which is set to remain in place until 2032, providing a long-term framework for taxation in the sector.

This development marks a notable shift in how the Faroese salmon farming industry is taxed, with the effects likely to influence both domestic production strategies and the competitiveness of Faroese salmon in global markets.

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