Iceland has recently implemented Law No. 51 of 22 June 2023, which brings about a significant change in the refund rate for new construction, renovation, and maintenance of residential properties. As of 1 July 2023, the refund rate will be reduced from 60% to 35%. This change comes after the temporary increase of the refund rate to 100% on 1 March 2020, as part of the country’s response to the COVID-19 pandemic. The increased rate was initially set to expire on 31 August 2022 but was extended before reverting to 60% from 1 September 2022.
It is important to note that taxpayers will still have the opportunity to apply for refunds for projects completed in earlier periods. The right to a refund can be established within six years, allowing individuals to claim the 60% refund for projects completed between 1 September 2022 and 30 June 2023, as well as the 100% refund for projects completed between 1 March 2020 and 31 August 2022. This provision ensures that those who have recently undertaken construction or renovation projects will still have the opportunity to benefit from the previous higher refund rates.
The decision to reduce the refund rate is likely to have a significant impact on the construction and property sectors in Iceland. The higher refund rates provided a strong incentive for individuals and businesses to invest in residential properties, leading to an increase in construction activity. The reduced refund rate may result in a slowdown in construction projects, as the financial incentive is now lower. This could have implications for the overall economy, as the construction sector has been an important driver of growth in recent years.
The Icelandic government has justified the reduction in the refund rate by citing the need to balance the budget and ensure the long-term sustainability of public finances. The temporary increase in the refund rate was implemented as an emergency measure to support the economy during the pandemic. However, as the situation has improved and the country moves towards recovery, the government believes it is necessary to reduce the refund rate to a more sustainable level.
Critics of the decision argue that the reduction in the refund rate may discourage investment in the construction and property sectors. They contend that the higher refund rates were instrumental in stimulating economic activity and creating jobs. The decrease in the refund rate could potentially lead to a decrease in construction projects, which could have a ripple effect on other industries that rely on the construction sector. Additionally, some argue that the timing of the reduction, as the economy is still recovering from the effects of the pandemic, may hinder the overall recovery process.
It remains to be seen how the reduction in the refund rate will impact the construction and property sectors in Iceland. The government will likely monitor the situation closely and assess the effects of the change in order to determine whether any further adjustments are necessary. In the meantime, individuals and businesses involved in construction and renovation projects will need to carefully consider the financial implications of the reduced refund rate and adjust their plans accordingly.
In conclusion, Iceland has implemented a new law that reduces the refund rate for new construction, renovation, and maintenance of residential properties from 60% to 35%. This change comes after a temporary increase in the refund rate to 100% as part of COVID-19 response measures. Taxpayers still have the opportunity to apply for refunds for projects completed in earlier periods, but the reduction in the refund rate may have implications for the construction and property sectors. The government argues that the reduction is necessary for long-term financial sustainability, while critics worry about the impact on investment and economic recovery. The effects of the change will be closely monitored, and adjustments may be made if deemed necessary.
