Taxes in Iceland

Iceland uses the calendar year for taxation. The Ministry of Finance and Economic Affairs sets tax policy and legislation. Skatturinn, Iceland Revenue and Customs, administers assessment, collection, audits, VAT, employer and business registrations, and customs. The taxpayer’s municipality sets the útsvar rate, so the final personal assessment can differ from the average rate used for withholding. There is no separate administrative tax system for Iceland’s regions. A person with tax residence or permanent residence in Iceland generally has unlimited tax liability. A non-resident is generally taxed on Iceland-source income. The 183-day and 12-month rules can affect residence, and Skatturinn determines difficult residence cases. An overseas employer does not automatically remove Icelandic tax duties. Wages, benefits and pensions are generally category A income; business and professional income is category B; dividends, interest and gains are category C income. Employers withhold tax from wages and the employee’s own remuneration. In 2026, monthly wage withholding including average útsvar is 31.49% up to ISK 498,122, 37.99% from ISK 498,123 to ISK 1,398,450, and 46.29% above ISK 1,398,450. The actual útsvar depends on the municipality. The persónuafsláttur is a personal tax credit of ISK 72,492 per month, or ISK 869,898 per year, for a person aged 16 or over who is domiciled in Iceland. The credit can be prorated after moving to or from Iceland or during temporary work. A person with several employers must coordinate the credit and withholding bands so that the total withholding matches the expected annual income. Capital income is generally taxed at 22%. A person may have a combined ISK 300,000 annual exemption for interest and qualifying dividends or gains from certain listed securities. Gains from a private residence may qualify for an exemption when the ownership period and other conditions are met. Rental income from up to two residential properties may qualify for a 25% exemption when the legal conditions are satisfied. Interest treatment can depend on the income type, residence status and an applicable tax treaty, so the current Skatturinn rule should be checked for the specific case. Private pension insurance contributions can generally be deducted up to 8% of employment or presumed employment income. Operating losses are normally available only against business income, may be carried forward for up to ten years and cannot be carried back. A limited-liability company such as an ehf. or hf. generally pays 20% corporate income tax. Certain partnerships, estates, bankrupt estates and other self-governing entities can fall under a 37.6% rate. The legal form therefore affects the tax result. A self-employed person can also have presumed employment income and social-security obligations. Employers pay tryggingagjald, the employer social-security charge, at the general 2026 rate of 6.35%; the rate for seafarers is 7%. Wage withholding and these employer charges are generally paid from the first to the fifteenth day of the following month. Pension, union and payroll reporting duties can apply in addition to the tax payment. VAT is called virðisaukaskattur or VSK. The standard rate is 24% and the reduced rate is 11%. A taxable seller generally registers when taxable turnover exceeds ISK 2,000,000 in twelve months and uses form RSK 5.02. VAT periods are normally two months, with the return and payment due one month and five days after the period ends. A business with annual turnover below ISK 4,000,000 may apply for annual settlement, with the return and payment generally due by 15 February. An electronic nil return is still required when no VAT is payable. A missing return can lead to an estimated assessment and an ISK 5,000 surcharge. Changes in the registered activity must generally be reported within eight days. VAT invoices should show the date, seller and buyer names and kennitala, VAT number, item, quantity, price and VAT amount. Foreign businesses supplying electronic services, telecommunications, subscriptions, broadcasting or certain tourism services directly to Icelandic consumers may fall under the VOES scheme. The general threshold is ISK 2,000,000 in taxable turnover over twelve months. VOES is a payment and filing scheme and does not provide an input-tax deduction. Foreign businesses should also check whether another Icelandic registration or a foreign VAT refund procedure applies. Individuals normally file an annual return electronically through the Skatturinn portal using electronic identification or a veflykill. The return is generally filed in March. For income year 2025, the 2026 filing deadline was 13 March. Assessment normally takes place at the end of May, and credits are generally available from 1 June. The final amount compares assessed liability with withholding and can produce a refund or an additional payment. Tax debt normally follows seven payment dates, while payroll collection and payment plans follow their own arrangements. Companies generally file an annual corporate tax return electronically by 31 May. Annual financial statements are generally filed publicly by 31 August or within one month after the annual general meeting, and in any event no later than eight months after the financial year ends. Failure to file or incomplete accounts can result in an administrative fine of ISK 600,000. A taxpayer can request correction of an individual assessment through the Skatturinn portal. A written complaint against an assessment is generally filed with Skatturinn within 60 days. A further appeal to Yfirskattanefnd, the administrative tax appeals board, is generally filed within three months. VAT assessment or registration appeals to the Director generally have a 30-day period, while complaints about collection agencies to the Ministry generally have a three-month period. Cross-border taxation depends on residence, source and any applicable double-tax treaty. Iceland can tax Iceland-source wages, services, permanent establishments, real estate, royalties, dividends and interest under the relevant rules. A treaty can restrict Iceland’s taxing right or provide an exemption, reduced rate or refund. A person or company applying for treaty treatment may need form RSK 5.42 and a foreign-residence or full-unlimited-liability certificate. Domestic tax generally remains payable until Skatturinn approves the treatment. A foreign contractor providing services in Iceland can have limited Icelandic tax liability, and a permanent establishment generally faces the 20% corporate rate for a limited-liability company or the applicable higher rate for another entity type.