Top Sectors in Faroe Islands

Oil And Gas in Faroe Islands

Oil consumption in the Faroe Islands peaked at over 300,000 tonnes, with 30% used for fishing vessels. 217,547 tonnes of oil products were consumed in the Faroe Islands. Of this, 31.58% was consumed by fishing vessels, 14.73% was used by SEV for electricity production, 23.23% was consumed in air, sea, or land transport, 9.6% was used in industry, and the rest was used in public or private buildings.

Energy in Faroe Islands

The islands have 6 hydroelectric plants, 4 diesel plants, and several wind power plants with a capacity factor above 40%. In 2014, a 12MW wind farm for DKK 180 million became operational near Torshavn, increasing wind capacity from 6.6 to 18.6MW. This wind farm decreases oil consumption by 8,000 tonnes (approximately 4 million euros) per year. Additionally, a 2.3MW 700 kWh lithium-ion battery became operational in 2016. Planners are considering converting existing hydropower to pumped-storage hydroelectricity, and exploring tidal power and thermal energy storage solutions. The Faroe Islands aim for 100% green electricity production by 2030.

Faroe Islands - Key Economic Indicators

Exports and Imports

The Faroe Islands primarily export fishery products, which make up a significant portion of their total exports. In 2023, the total value of Faroese exports was approximately $500 million. Imports consist of various goods and commodities needed for domestic consumption and industry, with machinery and equipment being notable categories. In the same year, the total value of imports amounted to around $350 million.

Infrastructure

The Faroe Islands have invested in developing their infrastructure, including roads, bridges, and ports, to facilitate transportation and connectivity between islands. Approximately 70% of the roads are paved, with ongoing maintenance and expansion projects to improve accessibility. Investments in ports and harbors have also been made to support the fishing industry and maritime trade.

Balance of trade

The Faroe Islands typically maintain a positive balance of trade due to their significant exports of fishery products. In 2023, the trade surplus was approximately $150 million, reflecting the difference between the value of exports and imports. This surplus helps to offset the costs of importing goods needed for domestic consumption and industrial processes.

Fiscal policy

The Faroe Islands manage their fiscal policy to support economic growth and development, with a focus on investing in key sectors such as fisheries, tourism, and infrastructure. Government spending in 2023 amounted to approximately $200 million, with revenue primarily generated through taxation. Taxation policies are designed to generate revenue while ensuring the competitiveness of local businesses and promoting social welfare.

Monetary policy

The Faroe Islands do not have their own central bank and use the Danish krone (DKK) as their official currency. Monetary policy decisions are primarily made by the Danish central bank, Danmarks Nationalbank, which influences factors such as interest rates and money supply to maintain price stability and support economic growth in the Faroe Islands.

Trade agreements

While the Faroe Islands are not members of the European Union, they have a close relationship with the EU through the trade agreements negotiated by Denmark, of which they are a constituent country. Additionally, the Faroe Islands have trade agreements with other countries and regions to facilitate the export and import of goods.

Environmental regulations

The Faroe Islands have implemented environmental regulations to protect their natural resources and ecosystems, particularly those related to the fishing industry, which is vital to their economy. Measures include quotas and sustainable fishing practices to ensure the long-term viability of fish stocks. Additionally, efforts are made to address environmental challenges such as pollution and climate change through initiatives focused on renewable energy, waste management, and conservation.

Tax System in Faroe Islands

Capital gains tax: The Faroe Islands do not currently have a capital gains tax on profits from investments. This policy is aimed at fostering investment and entrepreneurship, as individuals and businesses are not penalized for realizing gains on their assets.
Corporate tax rate: The standard corporate tax rate is 18% for most businesses operating in the Faroe Islands. However, certain industries, such as fishing and shipping, may benefit from special tax regimes with lower rates or incentives to encourage investment and economic development.
Sales tax: The standard rate of GST is 25% for goods and services sold in the Faroe Islands. This relatively high rate of sales tax contributes significantly to government revenue and is used to fund public services and infrastructure projects.
Property tax: Property taxes in the Faroe Islands are levied by local municipalities. Rates and assessment methods vary, with average property tax rates ranging from 0.5% to 2% of the property value annually. Property tax revenue plays a crucial role in financing local government operations and services.
Payroll tax: There is no specific payroll tax in the Faroe Islands. However, employers and employees contribute to social security schemes, with contributions typically ranging from 5% to 10% of wages and salaries. These contributions fund social welfare programs such as pensions, healthcare, and unemployment benefits.
Tax deductions and credits: The Faroe Islands may offer certain deductions and credits to individuals and businesses to reduce their tax liability. These incentives can vary widely, with some deductions covering expenses such as charitable contributions, education expenses, and investment incentives aimed at promoting economic growth and development.
Tax compliance: Tax compliance in the Faroe Islands is generally high, with efficient tax collection and enforcement mechanisms in place. The tax authority, TAKS, oversees tax administration and compliance, ensuring that individuals and businesses fulfill their tax obligations accurately and on time. Penalties may be imposed for non-compliance to maintain the integrity of the tax system.
Tax burden: The overall tax burden in the Faroe Islands is relatively moderate compared to many other countries. Tax revenue is used to fund essential government services, social welfare programs, and infrastructure projects. The tax-to-GDP ratio in the Faroe Islands is approximately 30%, indicating the proportion of the country's economic output that goes towards taxation. Efforts are made to balance tax revenue with the needs of the population and the economy, ensuring sustainable fiscal policy.

Economy of Faroe Islands