This article provides an overview of the availability and key conditions for obtaining sole proprietorship status in the Faroe Islands in 2025, including tax obligations and registration requirements. All data presented reflects official guidance as provided by the Faroese tax authorities.
Overview: Sole Proprietorship in the Faroe Islands
Sole proprietorship status, known locally as Einstaklingur við vinnu (self-employed individual), is available in the Faroe Islands. This framework allows residents to operate a business and invoice clients without establishing a separate legal entity. It remains one of the most accessible business structures in the jurisdiction and is widely used in practice. Sole proprietors enjoy straightforward business registration but are personally liable for all obligations of the business.
Registration Requirements
To operate as a sole proprietor, individuals must complete a formal registration with the Faroese tax authority, TAKS. The process is designed to be accessible to Faroese citizens, facilitating market entry for new businesses. There are no restrictions on the types of economic activities that can operate under this status, making it suitable for various professions and trades.
Personal Liability
It is important to note that sole proprietors in the Faroe Islands are fully and personally liable for all debts and obligations incurred in the course of doing business. This means that personal and business assets are not separated, so any business liabilities can be enforced against personal property.
Taxation for Sole Proprietors in 2025
The tax regime for sole proprietors is integrated with the personal income tax system. Income generated from sole proprietorship activities is taxed as personal income. Below are the official rates and allowances for 2025, as set by the Faroese government.
| Tax Component | Rate / Amount (FOK, %) |
Comments |
|---|---|---|
| Municipal Income Tax | 20% – 23% | Depends on the local municipality |
| National Income Tax | 20% | Flat rate applied to taxable income |
| Basic Allowance | Applies | Deduction available before taxes applied |
| Social Security Contributions | Mandatory | Applies to all sole proprietors |
For reference, all income declared as a sole proprietor is subject to these tax rates. The specifics of the basic allowance and social security contribution amounts depend on annual government guidelines and personal circumstances. Official details can be found on the TAKS main business portal.
Summary Table: Key Conditions for Sole Proprietorship
| Condition | Description |
|---|---|
| Status Name | Einstaklingur við vinnu (Self-employed individual / Sole proprietorship) |
| Legal Entity Required | No – personal liability applies |
| Eligibility | Accessible to Faroese citizens |
| Registration Authority | TAKS (Faroese tax authority) |
| Taxation | Income taxed as personal income |
| Other Obligations | Social security contributions; personal liability |
Pro Tips for Operating as a Sole Proprietor in 2025
- Ensure timely registration with TAKS: Immediate registration is mandatory before commencing any business activities as a sole proprietor in the Faroe Islands.
- Understand your tax bracket: Review your municipality’s specific rates and allowances to optimize your net income and ensure compliance.
- Keep thorough financial records: Since your personal and business incomes are merged for tax purposes, accurate bookkeeping is essential for correct tax filing and potential audits.
- Be aware of personal liability: Limit exposure by considering business insurance where appropriate, as you are personally responsible for all business debts and obligations.
- Monitor social security obligations: Contributions are required in addition to income tax; verify current contribution levels with TAKS each year.
Key Sources
- TAKS Self-Employed Overview
- TAKS Business Start Portal
- TAKS Individual Taxation
- Nordic Tax Authorities
In summary, the Faroe Islands offer an accessible and straightforward pathway for residents seeking sole proprietorship status, with direct personal tax integration and mandatory social security contributions. Registration with the tax authority is essential, and personal accountability for obligations is notable. With rates set at both national and municipal levels, careful advance planning and continual compliance are the keys to operating smoothly as a sole proprietor under the Faroese regime in 2025.