Verne Global

Industry | Iceland |

8 June 2017

Why tax matters when it comes to data center site selection

Written by Isaac Kato

As Verne Global's CFO and Executive Vice President, Isaac is responsible for the company's finances, business operations, and government relations.

When enterprises set out to procure colocation or wholesale data center space, they often have a selection criteria list of 10 to 20 major items, and sometimes more, which they use to identify the best site for their needs.

These items usually include resiliency, SLA, and facility specs, power price and availability, telecommunications access, all types of risk factors, operator capabilities, and, of course, price. Savvy enterprises also carefully evaluate the tax regimes of the locations they are considering. This was less relevant when companies would select data centers based on their proximity to headquarters. However, in the age of distributed and remote computing, enabled by application optimisation, remote management tools and cloud computing infrastructures, smart enterprises can find substantial cost savings and carbon reduction opportunities by putting their less latency-sensitive applications in locations further afield from traditional metro locations. This does, however, require an understanding of the new location’s tax policies and rules.

Fortunately for Verne Global’s customers in our Icelandic facility, Iceland has an extremely favorable tax regime as well as a very straightforward process for establishing an entity, if it is even required. Thanks to recent legislation enacted by the Icelandic Parliament in October 2016, Iceland now has the clearest definition within Europe of how it treats computer servers regarding permanent establishment (PE) and whether a local entity is required.

The key passage in the bill says that the presence of servers alone in Iceland does not require the foreign owner or user of the server to establish an Icelandic entity for tax purposes. More specifically, if a foreign customer of an Icelandic data center is using its servers in Iceland to perform auxiliary, back office, or support computing, it will not have to establish an Icelandic PE and pay Icelandic corporate tax. This is by far the clearest definition of any country’s PE rules in Europe and removes the ambiguity of whether a customer might be taxed just for locating servers in Iceland. This is especially relevant for many of Verne Global’s customers who are using their servers for highly computationally intensive processes such as simulation, analysis, and other high performance computing (HPC) applications.

All that said, many of our customers elect to establish an Icelandic PE, whether required or not. Iceland has a low corporate tax rate of 20%, adheres to standard OECD transfer pricing rules, and has a straightforward, low cost process for establishing a local entity. Most of our customers spend less than $15,000 to set up an entity.

The rise of remote computing is a major boon for enterprises everywhere, thanks to the massive cost savings and environmental benefits it can provide. Leading new economy companies are major users of remote computing for these reasons. The good news for Verne Global’s foreign customers is that the local tax rules are simple, clear, and make it very easy to do business in Iceland.

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