Offshore króna assets
Since the capital controls were introduced, offshore króna assets and other króna-denominated assets have been subject to restrictions laid down in the Foreign Exchange Act and the Rules on Foreign Exchange. The principal objective of the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions, no. 37/2016, was to segregate offshore krónur in a secure manner so that it would be possible to take the next step towards lifting the capital controls and re-establishing unrestricted cross-border transactions with krónur without jeopardising financial stability or monetary or exchange rate stability. When Act no. 37/2016 entered into force, it was foreseen that the restrictions it provided for would be temporary measures and that the authorities would once again aim to lift the capital controls on offshore króna assets once resident entities’ asset portfolios had been better rebalanced.
Amendments to the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions, no. 37/2016, entered into force on 5 March 2019, with the passage of Act no. 14/2019. The purpose of the amendments was to expand offshore króna owners’ authorisations to withdraw funds from accounts subject to special restrictions without undermining the efficacy of the special reserve requirement on capital inflows. The amendments entailed expanded authorisations for withdrawals from account subject to special restrictions, so that all offshore króna holders would be given the chance to release their offshore króna assets.
What are offshore króna assets?Offshore króna assets are the following assets, as they were at the time the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions entered into force:
a) Deposits denominated in Icelandic krónur and held by the following parties with deposit money banks in Iceland, irrespective of whether the party in question is the beneficial owner of the deposits or whether that party holds them in custody for another:
a-1) Foreign legal entities that have an operating licence or that carry out legally defined activities in the financial markets, their branches, and subsidiaries owned by them.
a-2) Other foreign institutional investors that invest in financial instruments, including parties that engage in securitisation or other financing activities.
b) Funds held in a custodial deposit account in the name of the payer, in an escrow account with a deposit money bank in the name of the owner or his representative, or in the form of specified assets of a creditor in the custody of the payer, provided that they have been paid for the benefit of a non-resident entity that has or has had a claim against a legal entity that has undergone winding-up proceedings or insolvency proceedings or has undergone restructuring via composition agreement.
c) Icelandic Treasury bonds and bills issued in Icelandic krónur or bearing a State guarantee, and owned or held in custody by a party falling under Item (a).
d) Unit share certificates owned or held in custody by a party falling under Item (a) and issued in Icelandic krónur, in mutual, investment, and institutional investment funds that invest, directly or indirectly, in financial instruments issued by the Icelandic Treasury or bearing a State guarantee.
e) Shares, bonds, and any type of debt instrument issued in Icelandic krónur by resident entities that underwent restructuring on the basis of a composition agreement according to the Act on Bankruptcy, Etc., after 28 November 2008, and owned by non-resident legal entities as a result of conversion of claims in which they invested after 28 November 2008. The same applies to reinvestment of the proceeds from such assets that have been sold, either partially or in full.
f) Shares, bonds, and any type of debt instrument issued in Icelandic krónur by resident entities, if the investment took place after 28 November 2008 and payment was remitted, directly or indirectly, by withdrawal from an account in Icelandic krónur with a foreign financial institution.
g) Unit share certificates owned or held in custody by a party falling under Item (a) and issued in Icelandic krónur, in mutual, investment, and institutional investment funds that, among other things, invest, directly or indirectly, in financial instruments issued in Icelandic krónur by entities other than the Icelandic Treasury or bearing a State guarantee; deposits, cash, and derivatives.
h) Sales proceeds or other payments due to assets according to Items (c)-(g) that accrue during the period from the entry into force of the Act until 1 September 2016.
Exemptions from the scope of the ActThe following offshore króna assets are exempt from the provisions of the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions:
1) Those owned by governments, central banks, and international institutions of which Iceland is a member.
2) Those deriving from payments of premiums according to contractual agreements in domestic currency concerning supplemental insurance for the acquisition of personal pension savings and concerning investment plan insurance, single-premium life insurance, and regular savings on the basis of the exemptions of foreign insurance companies and foreign pension custodians from the restrictions set forth in Article 13(b), Paragraph 3 of the Foreign Exchange Act.
3) Those held by foreign electronic money institutions and payment institutions and utilised in accordance with these institutions’ exemptions from the restrictions set forth in Article 13(b), Paragraphs 1 and 2 and Article 13(c), Paragraph 2 of the Foreign Exchange Act, for the purpose of engaging in payment intermediation in Iceland.
4) Confirmed new investments according to Article 13(m) of the Foreign Exchange Act and those deriving from investments undertaken after 28 November 2008 using new inflows of foreign currency in the sense of Article 13(m), Paragraph 2 of the Foreign Exchange Act, but not including direct or indirect investments in derivatives contracts and claims against entities that are in winding-up or insolvency proceedings or have concluded winding-up or insolvency proceedings via a composition agreement entailing the distribution of assets to creditors.
5) Those deriving from participation in Central Bank of Iceland auctions during the period from 28 June 2011 through 10 February 2015.
6) Those deriving from the satisfaction, by parties falling under Article 2 of the Act on a Stability Tax at the time that Act entered into force, of claims according to a composition agreement.
7) Those offshore króna assets according to Article 2, Item 1(e) of the Act that derive from non-residents’ claims against residents on the basis of a composition agreement pursuant to the Act on Bankruptcy, Etc., if the Central Bank of Iceland has granted an exemption from the restrictions set forth in the Foreign Exchange Act, for distributions in foreign currency.
8) Those offshore króna assets that were the basis for foreign exchange transactions with the Central Bank of Iceland at the reference exchange rate according to Article 9, Paragraph 2.
9) Those offshore króna assets that were the basis for foreign exchange transactions in the Central Bank of Iceland foreign currency auction held in 2016, at the auction exchange rate, for an amount equal to the market value of the offshore króna assets, so that settlement of the transaction takes place with delivery, by the owner of the offshore króna assets, of an amount equal to the market value of the offshore króna assets less the product of the market value of the offshore króna assets and a percentage of the Central Bank of Iceland’s official central exchange rate of the Icelandic króna against the euro on 20 May 2016 and the auction exchange rate.
10) Those owners of offshore króna assets that are exempt from Article 13(b), Paragraph 3 of the Foreign Exchange Act due to transfer of custody from a non-resident legal entity to a deposit institution or custodian in Iceland on the basis of a written application received by the Central Bank of Iceland prior to the entry into force of this Act.
Granting of exemptions from Act no. 37/2016The Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions, no. 37/2016, does not authorise the Bank to grant exemptions from the Act. On the other hand, Article 3, Item 10 of Act no. 37/2016 states that the restrictions provided for in Article 2 of the same Act do not apply to those offshore króna assets for which the Central Bank has granted an exemption from Article 13(b), Paragraph 3 of the Foreign Exchange Act, for the transfer of domestic currency from the custody of a foreign legal entity to a deposit institution or custodian in Iceland, provided that a written application for such transfer was received prior to the entry into force of Act no. 37/2016.
Authorisations for disposal and withdrawal
Authorisations for withdrawals in connection with release of offshore krónur
General authorisation: An authorisation for all holders of offshore krónur to release their offshore króna assets and purchase foreign currency and export it to an account abroad. The authorisation extends only to deposits and certificates of deposit; however, owners of other types of offshore króna assets, such as securities, will have the option of selling those assets or, as applicable, holding them until maturity if they wish to exercise this general authorisation.
Authorisation in connection with continuous ownership: An authorisation for offshore króna holders that have owned offshore króna assets continuously since before 28 November 2008 to release those offshore króna assets from the legal restrictions. It is not required that foreign currency be purchased, as with the general authorisation; instead, it is permissible to allocate the assets in Iceland. This authorisation is subject to confirmation by the Central Bank of Iceland that the continuous ownership requirement has been satisfied.
Authorisation for individuals: An authorisation for individuals to withdraw up to 100 m.kr. from accounts subject to special restrictions.
This authorisation extends to deposits and Central Bank of Iceland certificates of deposit. It is not required that foreign currency be purchased, as with the general authorisation; instead, it is permissible to allocate the assets in Iceland. This authorisation is subject to confirmation by the Central Bank of Iceland that an individual is the beneficial owner of the funds.
The authorisation in connection with continuous ownership and the authorisation for individuals require confirmation by the Central Bank of Iceland. Applications should be sent by e-mail to firstname.lastname@example.org. Applications for confirmation of continuous ownership must be accompanied by documentation demonstrating continuous ownership; i.e., an account statement dating from before 28 November 2008 and information on the assets when confirmation is requested. An individual’s application for confirmation must be accompanied by documentation demonstrating that the individual concerned is the owner of the funds; i.e., a recent account statement.
It is permissible to invest in Central Bank of Iceland certificates of deposit and financial instruments issued in domestic currency and included in the Central Bank of Iceland investment list. Certificates of deposit are issued by the Central Bank of Iceland. They do not have a specified maturity date, they bear variable annual interest, and reimbursement of the principal is authorised only in accordance with the decision of the issuer. Upon issuance, the certificates of deposit shall bear an annual interest rate of 0.5%, which shall be reviewed by the Central Bank of Iceland on the interest payment date.
Transfer between accountsTransfer of funds between accounts subject to special restrictions are permissible.
Withdrawals of interest, indexation of interest, and dividendsIt is permissible to withdraw accrued interest, indexation of interest, dividends, contractual instalments on the principal of loan obligations other than bullet loan obligations, and indexation of such contractual instalments. The Central Bank of Iceland must be notified of withdrawals pursuant to the first sentence within five business days of their taking place.
The term interest refers to interest on deposits held in accounts subject to special restrictions, bonds and bills according to Article 2, Items 1(c), 1(e), and 1(f) of Act no. 37/2016, and Central Bank of Iceland certificates of deposit.
The term dividends refers to dividend payments on profits from a company’s regular operations, not on revenues deriving from the sale of assets in excess of sales gains, profits due to debt write-offs, asset valuation increases, share capital reductions, or other comparable sources. Dividends shall be financed with cash from operations in available funds and not with asset sales, borrowings, share capital increases, or other comparable measures. If the measure underlying the payment of dividends differs substantially from general practice in such transactions and the main purpose appears to be the circumvention of restrictions provided for in this Act, the Central Bank may refuse confirmation.
Confirmation requests and documentation shall be sent in electronic form to the Central Bank of Iceland at the e-mail address email@example.com. The contents of requests for confirmation are discussed in Article 2 of the Rules on the Treatment of Króna-Denominated Assets Subject to Special Restrictions, no. 425/2016.
Authorisation for withdrawals by individualsUpon receiving confirmation from the Central Bank, individuals are permitted to withdraw a maximum of 100,000,000 kr. per calendar year, provided that the offshore króna assets have been continuously owned by the beneficial owner since 28 November 2008.