Iceland Tax Laws and Regulations
Iceland Tax Laws
With more than 20 years’ experience in the front line of international payroll providers, Bradford Jacobs ensures our clients comply with every variation of taxation laws across the globe. Our ‘knowledge’ is vital for international companies expanding into the North Atlantic Island of the Republic of Iceland.
Dealing with tax, payroll, and employment regulations for your staff from overseas is always a tricky process and poses complications that demand expert guidance. Iceland is no exception, with different categories of personal taxation applying both at state and municipal levels.
Bradford Jacobs’ dedicated specialists remove the burdens of worrying about these complications while you focus on building your business in a new territory. From locating the brightest talent to running your payroll, our Professional Employer Organization (PEO) and Employer of Record (EOR) specialists are with you every step of the way.
Overview of Taxes in Iceland
* Iceland is not a member of the European Union or the Eurozone and uses the Icelandic krona (ISK) as its currency.
Personal Income Tax (PIT): There are three categories: Category A (wages, salaries, benefits, pensions and social security payments, royalties etc.); Category B (income from businesses or independent or other economic operations); Category C (income from dividends, interest, and capital gains). Tax bands are 17.0%, 23.5% and 31.8% beginning on annual income of up to ISK 4,188,211 (€28,800, US$32,260). Municipal taxes of 14.45% are added to each band, giving a top rate of 46.25% for income over ISK 11,758,159 (€80,860, US$90,550).
Social Insurance Taxes: Employers and employees contribute to the social insurance system. Since January 2022, employers contribute 6.10% on salaries and all remuneration. Employers, at 8.0%, and employees, 4.0%, also contribute to the pension fund.
Corporate Income (Tax): Limited liability companies and partnerships are liable for CIT at 20%. Other types of entities are taxed at 37.6%.
Withholding Tax (WHT): Rates are 22% on dividends paid to a resident company and 20% on dividends paid to a non-resident entity.
Value Added Tax (VAT): The top rate is 24%, with a reduced 11% rate applying to such as hotel accommodation, transportation, radio and TV subscriptions, newspapers, and other categories. The zero rate mainly applies to exports and services provided abroad.
Capital Gains Tax (CGT): Gains from the sale of shares is treated as taxable income at 22%.
Cyprus Individual Tax – Single, Married
Liability is based on residency, with individuals who stay in Iceland for more than 183 days in any 12-month period considered tax residents who are taxed on their worldwide income. Non-residents, those who stay in Iceland for fewer than 183 days, are taxed on income sourced in Iceland. The tax year runs from January 1 until December 31, with returns due by the following March 10. Regional Tax Directors send collection and assessment notifications by the first week of June. Married couples and registered partnerships can apply to file joint returns.
Personal income tax comprises three different categories: Category A (wages, salaries, benefits, pensions and social security payments, royalties etc.); Category B (income from businesses or independent economic operations); Category C (income including dividends, interest, and capital gains).
* Iceland is not a member of the European Union or Eurozone and uses the Icelandic krona (ISK) as its currency.
Personal Income Tax (PIT)
The first band is subject to a tax credit of ISK 609,509 (US$4,190, US$4,690) as applied in 2021.
Figures in ISK (euros and US dollars)
|Annual Income||State Tax||Municipal Tax*||Total|
|Up to ISK 4,188,211 (€28,800, US$32,260)||17.00%||14.45%||31.45%|
|On the next ISK 7,569,948 (€52,064, US$58,250)||23.50%||14.45%||37.95%|
|Income over ISK 11,758,159 (€80,970, US$90,490)||31.80%||14.45%||46.25%|
Employee Social Insurance Contributions: Pension Fund – 4.00%
* Employees can voluntarily contribute an extra 4% of income to the pension fund or a private fund.
Additionally, all taxable individuals between the ages of 16 and 69 must contribute to the ‘elderly fund’. In 2021 the lump sum contribution was ISK 12,034 (€83, US$92.50).