Amendments to the Foreign Exchange Act
Law amending the Foreign Exchange Act, no. 87/1992 took effect on 21 October 2016. Their purpose is to lift capital controls on households and businesses. The new legislation became effective on 21 October. The principal changes made with the amending Act entail increased authorisations for foreign exchange transactions and cross-border movement of capital, plus the removal of specific restrictions that have applied to foreign exchange transactions and cross-border movement of capital. Some of the amendments provided for enter into force immediately and others on 1 January 2017. Before 1 July 2017, the Central Bank of Iceland is also required to review the maximum authorisations (ceilings) applying to specific foreign exchange transactions and cross-border movement of capital in its Rules on Foreign Exchange.
The amendments are part of the authorities’ capital account liberalisation strategy, introduced on 8 June 2015. With them, important steps are taken towards full removal of the capital controls.
The most salient amendments to the Foreign Exchange Act that enter into force immediately are the following:
- Foreign outward direct investment is unrestricted but subject to confirmation by the Central Bank of Iceland.
- Investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans is permissible up to the equivalent of 30,000,000 kr., upon satisfaction of specified conditions.
- Individuals are permitted to purchase one (piece of) real estate per calendar year, irrespective of the purpose and the purchase price.
- The authorisation to purchase foreign currency for travel abroad is increased from 350,000 kr. per month to 700,000 kr. per trip taken.
- The requirement to repatriate foreign currency in connection with loans taken abroad by individuals for the purchase of real estate or motor vehicles/transport equipment abroad, or for investment abroad, has been revoked.
- Various special restrictions have been eased or lifted entirely, including individuals’ authorisation to purchase foreign currency for travel, for tax payments, and for the purchase of motor vehicles/transport equipment.
- The Central Bank of Iceland’s authorisations to gather information in accordance with its role as a central bank have been expanded so as to allow the Bank to gather information that better enables it to promote price stability and financial stability after the capital controls have been lifted.
The most salient amendments to the Foreign Exchange Act that enter into force on 1 January 2017 are the following:
- The ceiling on investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans will be raised to 100,000,000 kr.
- Transfers of deposits are authorised up to the aforementioned maximum. The requirement of domestic custody of foreign securities investments is revoked, and transfer of custody of securities is permitted. This will enable residents and non-residents to transfer deposits and securities to and from Iceland and to trade in securities abroad within the limits specified in the Act.
- Individuals’ authorisations to purchase and withdraw foreign currency in cash are expanded significantly, so that individuals will be permitted to purchase or withdraw foreign currency in cash up to the aforementioned maximum.
Concurrent with the amendments to the Foreign Exchange Act, the Central Bank’s Rules on Foreign Exchange have also been updated; cf. the Rules on Foreign Exchange, no. 826/2016. The Central Bank of Iceland has compiled guidelines on the implementation of the Rules so as to assist financial undertakings and other parties in instances requiring them to notify the Central Bank or receive its confirmation of foreign exchange transactions and cross-border movement of capital, in order to ensure that the transactions are in accordance with the entry descriptions that can be found in the guidelines accompanying the Rules. Furthermore, the Central Bank has issued guidelines explaining how to demonstrate that specific transactions entailing cross-border movement of capital shall take place on the basis of the authorisations laid down in the Foreign Exchange Act, such as trade in goods and services.
The Central Bank of Iceland will assess existing requests for exemptions in order to determine whether they fall under the authorisations in the amended Act and therefore no longer require an exemption. Applicants for exemptions may also contact the Central Bank’s Capital Controls Surveillance Unit and request further information about the status of their requests. It is possible to send queries to the e-mail address email@example.com or make telephone queries by calling +354 569 9600 during the Capital Controls Surveillance Unit legal staff members’ telephone hours, from 10:00 hrs. to 11:30 hrs. Monday through Friday.
It is estimated that the changes entailed in the amending Act will lead to a reduction of about 50-65% in the number of requests for exemptions from the Foreign Exchange Act. Furthermore, the processing time for such exemption requests should be shortened significantly.
Further information can be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.
These links will be available soon:
Guidelines and rules
Translation of amendments to the Foreign Exchange Act
Rules on Foreign Exchange
21 October, 2016