Long-term and broad political agreement settles the taxation model for salmon farming in the Faroe Islands

08 Jan 2025 23:34 CET

As an outcome of a broad political agreement stretching to 2032, the taxation of
the Faroes Salmon industry is restructured, effective from 1 January 2025.

Since 1 August 2023 and until 31 December 2024, the Faroese salmon industry has
paid a monthly revenue tax ranging from 0.5% to 20% of the sales value of the
harvested fish, calculated using the FishPool Index prices rather than actual
sales prices. The applicable tax rate (0.5% - 20%) has been dependent on the
difference between the industry production costs and the Fish Pool Index prices.

From 1. January 2025, the maximum revenue tax rate is reduced from 20% to 7.5%
and a special additional corporate tax rate of 12% is introduced on the taxable
income, however limited to salmon farming at sea - hence not the full value
chain. Bakkafrost's salmon farming at sea is equal to its Faroese Farming
segment.

From 1 January 2025, the revenue tax will be based on the SISALMONI index as
price reference, replacing the FishPool index. Also, the average production cost
used to determine the applicable revenue tax rate is changed to a simple average
across the three salmon farming companies in the Faroes. Previously it was a
harvest volume-weighted model. The production cost calculation includes:

· Cost of raw materials and auxilary materials
· Inventory changes
· Other external costs
· Employee costs
· Depreciations and amortization

The average production cost to be used for revenue taxation will be determined
for one year at a time. For 2025 it has been calculated to 44.77 DKK/kg and is
based on the most recent audited annual reports (2023) from the Faroese salmon
farming companies. The production cost valid for revenue taxation in 2026 and
2027 will be consumer and feed price indexed, while being recalculated for 2028
using the most recent audited annual reports at that time. This sequence then
continues in the years following.

Transition rules

Deferred taxes related to the biomass at sea per 31 December 2024 are accounted
for using the production cost and only the ordinary corporate tax rate of 18%.
This ensures a limited impact at the time of introduction on deferred taxes by
adding the 12% special corporate tax for salmon farming at sea.

Background

Since 1 August 2023, the Faroese Salmon industry has paid a monthly revenue tax
on the harvested fish ranging between 0.5% - 20%, depending on the difference
between the weighted average production cost for the Faroese Industry, and the
FishPool Index price. Compared to the preceding taxation model, where the
maximum revenue tax was 5.0%, the change introduced in August 2023 was a
significant increase in the taxation and volatility of the taxation.
Consequently, due to increased tax volatility, Bakkafrost reduced the share of
volumes sold on long fixed-priced contracts and downsized the VAP production and
staffing accordingly.

Following a renewed political debate about the appropriateness of the revenue
tax model in place, the Government and the largest opposition party made a broad
and long-term agreement to restructure the revenue tax to make it less volatile
to the salmon prices, hence improving the viability of producing VAP products
for contracted sales. Also, to provide greater stability on taxation, the
agreement was made as a broad political agreement stretching to 2032 between the
Government and the largest opposition party "Sambandsflokkurin". With the
agreement, the taxation of the Faroese Salmon industry should be restructured,
by reducing the maximum revenue tax rate from 20% to 7.5% and by introducing a
special corporate tax on the salmon farming industry. Initially the proposal was
to introduce an 8.0% special additional corporate tax on salmon farming at sea,
smolt production on land, harvest and farming support vessel operation (FSV). In
the final proposal approved by Parliament, this was changed to an additional 12%
corporate tax and applicable only to marine farming at sea. The standard
corporate tax for all companies in the Faroe Islands is 18% and will be
applicable to all of Bakkafrost's activities, except for marine farming where
the corporate tax rate will be 18% + 12%.

Revenue tax rates

Different revenue tax rates are applicable, dependent on the difference between
the monthly FishPool Index prices and the average production cost for the
Faroese salmon industry. The tax rates are as follows:

SISALMONI Index Price (P)
(prev. FishPool)               Tax Rate                 Tax Rate
Cost of production (C)         since 1 Aug. 2023        from 1 Jan. 2025
(all in DKK)

P    <  C                         0.5%                    0.5%
C    <= P < C+5                   2.5%                    2.5%
C+5  <= P < C+15                  5.0%                    5.0%
C+15 <= P < C+20                  7.5%                    7.5%
C+20 <= P < C+25                 10.0%                    7.5%
C+25 <= P < C+30                 12.5%                    7.5%
C+30 <= P < C+35                 15.0%                    7.5%
C+35 <= P < C+40                 17.5%                    7.5%
P    >  C +40                    20.0%                    7.5%

Contacts:

· Regin Jacobsen, CEO of P/F Bakkafrost: +298 23 50 01 (mobile)
· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: +298 23 50 60 (mobile)

This information is subject to the disclosure requirements pursuant to section 5
-12 of the Norwegian Securities Trading Act.

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