Iceland flag Iceland: Business Environment

Tax rates in Iceland

Tax Rates

Consumption Taxes

Nature of the Tax
Virðisaukaskattur abbreviated to VSK (VAT)
Tax Rate
24% for most products and some services.
Reduced Tax Rate
A reduced rate of 11% applies to: radio and television; rental of hotel rooms, guest rooms and other accommodation; sale, including subscription, of newspapers, periodicals, countryside and district newspapers and books, both hard copies and electronic copies; geothermal hot water, electricity and fuel oil used for heating; most food-related items (including alcoholic beverages); CDs, records, magnetic tapes and other similar means of music recordings, other than visual records; condoms; reusable diapers and diaper lining; the services of travel agents; transportation of passengers, whether by land, air or sea, including coaches and bus trips; admission to spas, saunas, etc.

Zero-rated items include: export of goods and services; supplies delivered for use on board vessels on international journeys; sale and leasing of aircraft and ships, shipbuilding along with repair and maintenance work on ships and aircraft and their fixed equipment; the design, planning and other comparable services related to construction and other real property abroad; contractual payments from the Treasury related to the production of milk and sheep farming; sales of services to foreign fishing vessels landing fish in Iceland; sales of services to persons neither domiciled nor having a venue of operation in Iceland, provided that the services are wholly used abroad; transportation of goods between countries or within the country when the transport takes place to or from Iceland.

Exempt items include: financial services; insurance; lease of residential property; medical services; social services; educational services; real estate transactions; specified cultural and sporting events; public transport; postal services; lotteries and betting pools; funeral services.
Other Consumption Taxes
Excise duties are levied on fuel, sale of electricity and hot water (an exemption applies to sales below ISK 500,000 per year). A carbohydrate tax is levied per litre or kg on gas and diesel oil, petrol, fuel oil and petroleum gas.
A special tax is collected from entities selling electricity and/or hot water to final users. A National Broadcasting Fee of ISK 18,300 per year is levied on all taxable individuals aged 16 to 70.
 
Find out more about Taxes and Accounting in Iceland on GlobalTrade.net, the Directory for International Trade Service Providers.
 

Return to top

Corporate Taxes

Company Tax
20% for LLCs and limited partnership companies
37.6% for other types of legal entities (partnerships registered as taxable entities)
Tax Rate For Foreign Companies
Resident entities pay tax on their worldwide income, whereas non-resident companies are taxed only on their Icelandic income, at the same rates as national companies.
Capital Gains Taxation
Capital gains are taxed as part of the general corporate income at 20%.
Gains derived by a corporation from the sale of shares are not subject to taxation.
Main Allowable Deductions and Tax Credits
Expenses necessary to provide, insure, and maintain income are generally deductible.
Depreciation of movable and immovable property is deductible at rates varying between 1% and 35%. Goodwill can be deducted at 10% or 20% per year.
Start-up expenses are generally deductible in full in their year of occurrence or over five years.
Interest expenses and bad debts (up to 5%) are generally deductible.
Payment to obligatory pension funds are deductible up to 10%. Donations are deductible up to 0.75% of total income.
Fines and taxes are not deductible.
Net operating losses can be carried forward up to ten years. Carryback of losses is not permitted.
Other Corporate Taxes
Property tax is levied at rates set at the municipal level.
Stamp duty is usually levied at 1.6% on transactions regarding the transfer of real estate or ship ownership.
Financial activity tax is levied at a rate of 5.5% on all remuneration paid to employees (6% on a tax base exceeding ISK 1 billion). Furthermore, financial institutions with debts exceeding ISK 50 billion are subject to a 0.145% tax.
A lodging tax is payable on accommodation that is subject to VAT at a flat fee of ISK 300 for each sold night (following the COVID-19 pandemic, the tax has been abolished for the period 1 April 2020 to 31 December 2021).
Social security contributions payable by the employer amount to 6.6% of the gross salary. Employer contributions to mandatory pension funds amount to 11.5%. Employers are liable for an additional 2% contribution if the employer opts for a private pension fund. Moreover, employers must pay 0.1% of all salaries to the Icelandic Rehabilitation Fund.
Other Domestic Resources
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Country Comparison For Corporate Taxation

  Iceland OECD United States Germany
Number of Payments of Taxes per Year 21.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 140.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 31.9 41.6 36.6 48.8

Source: Doing Business, Latest available data.

Return to top

Individual Taxes

Tax Rate

Income Tax Progressive rates (2021)
ISK 4,188,211 per year 17% + 14.45% municipal tax = 31.45%
From ISK 4,188,211 to ISK 11,758,159 23.5% + 14.45% municipal tax = 37.95%
Income exceeding ISK 11,758,159 31.8% + 14.45% municipal tax = 46.25%
Municipal income tax Between 12.44% and 14.52% in the final assessment (14.45% is withheld at source)
Capital income 22%
Allowable Deductions and Tax Credits
Payments to pension funds are deductible up to 4% of total employment income. All individuals are entitled to a tax credit against state and municipal income taxes (ISK 609,509 for income year 2021). For married or cohabiting couples, the credit not used by one of the spouse is added to the credit of the other spouse.
Losses on the sale of private property can be offset against gains made on the sale of a similar property in the same year.
Married or cohabiting couples are liable for child benefits, with rates being increased for single parents. Benefits are reduced for couples whose annual income exceeds ISK 7.2 million and for single parents earning more than ISK 3.6 million.
Individuals who buy a residence for their personal use and bear interest expenses are entitled to recompense by the State Treasury (varying depending on the taxpayer's income and net wealth).
Special Expatriate Tax Regime
Resident individuals are taxed on worldwide income; whereas non-residents are taxed only on income sourced in Iceland.
Icelandic-source income in the form of remuneration to non-resident directors and committee members, grants, or remuneration for independent personal services and art performances is taxed by assessment at a rate of 20% plus the average municipal income tax rate (14.45% in 2021).
Foreign experts qualifying for tax relief are taxed only on 75% of their income in their first three years of employment in Iceland.

Return to top

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the conventions signed
Withholding Taxes
Dividends: 0% (paid to a company of the EEA)/20% (companies)/22% (individuals); Interest: 20% (resident company)/22% (resident individual)/12% (paid to a non-resident); Royalties: 20% (resident company)/22%.
Bilateral Agreement
The United Kingdom and Iceland are bound by a double taxation treaty.

Return to top

Find out more about Taxes and Accounting in Iceland on GlobalTrade.net, the Directory for International Trade Service Providers.

Return to top

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: April 2022

Return to top