TAX LAWS IN ICELAND

Dealing with tax in Iceland while being overseas can be a tricky process and pose complications that would demand expert guidance. Iceland shows different categories of personal taxation applying both at state and municipal levels. With more than 20 years of experience in Global Expansion services, Bradford Jacobs ensures our clients comply with every variation of tax laws across the globe. Our ‘know-how’ is vital for international companies expanding into the North Atlantic island of the Republic of Iceland.

Bradford Jacobs’ dedicated specialists remove the burdens of worrying about tax complications while you focus on building your business in a new territory. From locating the brightest talent to running your payroll, our Professional Employer Organisation (PEO) and Employer of Record (EOR) specialists will guide you every step of the way.

Overview of Tax in Iceland

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, at 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 accommodations, transportation, radio and TV subscriptions, newspapers, and other categories. The zero rates mainly apply to exports and services provided abroad.

Capital Gains Tax (CGT)

Gains from the sale of shares are taxable at 22%.

Personal Income Tax in Iceland

Liability is based on residency, with individuals who stay in Iceland for more than 183 days in any 12 months considered tax residents who are taxed on their worldwide income. Non-residents, those who remain 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).

Annual Gross Income State Tax Municipal Tax* Total
Up to ISK 4,188,211 (EUR 28,800 - USD 32,260)
17.00%
14.45%
31.45%
ISK 4,188,211 - ISK 7,569,948 (EUR 52,064 - USD 58,250)
23.50%
14.45%
37.95%
Over ISK 11,758,159 (EUR 80,970 - USD 90,490)
31.80%
14.45%
46.25%

*Municipal tax can vary from 12.44% to 14.52% on assessment and depending on location.

Individual Tax Rules in Iceland

  • The tax year is from January 1 until December 31
  • Individuals must file their returns by March 10 following the tax year, preferably electronically.
  • Regional Tax Directors give collection and assessment notifications in the first week of June.
  • Married couples and registered partners can apply to file joint returns.
  • Employees’ due taxes are withheld at source each month and remitted to the Directorate of Internal Revenue and Customs (Skatturinn).
  • Any differences between withheld and assessed taxes are subject to refunds plus 2.5% or the deficit plus 2.5%; these are collected on five dates each year from July to December.
  • Individuals staying in Iceland for more than 183 days during any 12 months are considered tax residents from when they arrive and taxed on their worldwide income. Liability ends when they leave the country.
  • Former domiciled residents remain liable for three years after leaving Iceland.
  • Non-residents are responsible for tax on income gained during their stay, including municipal taxes.
  • Persons are responsible for tax in three categories – A (generally wages and salaries, plus other sources); B – from business activity; C – capital income such as dividends.
  • There are three income tax bands of 17.0%, 23.5%, and 31.8%, plus 14.45% municipal tax for each band.

Employer's Social Insurance and Statutory Contributions in Iceland

  • Social Insurance: All employers in Iceland must contribute to social insurance as part of their statutory costs. Employers contribute the equivalent of 8.00% of their employees’ taxable income to the state pension fund. Employers also contribute to social insurance, generally at a rate of 6.10%

  • Minimum Wages: Although there is no government-mandated national minimum wage in Iceland, employers face the statutory cost of complying with minimum wage levels set by Collective Bargaining Agreements (CBAs) and trade unions. For example, in 2021 one of the largest workers’ unions, Efling, dictated a minimum gross monthly wage for its full-time workers over 18 years old of ISK 351,000 (€2,410, US$ 2,720)

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