Taxes and duties

Taxable income

Taxable income includes all kind of income from past and present employment, business and profession, and capital. All income received by the taxpayer in money or moneys worth is subject to tax, unless it is exempt. The collection of individual income taxes (state and municipal) on employment income takes place at source each month during the income year.


Taxable income is divided into three main categories:


Category A. Wages and salaries, including presumptive employment income of the self-employed, employment-related benefits, old-age pensions, social security payments, grants, payments to copyright holders, royalties etc. Category B. Income from a business and income from an independent economic activity. Category C. Capital income such as dividends, interest and capital gains.


More information about taxable income is available at the web site of Iceland Revenue and Customs (Skatturinn).

On the Iceland Revenue and Customs web site you find the best information about everything realted to taxes and tax returns.


Personal tax credit is one of the important things employees need to know about. It´s a tax deduction employees can use to lower the tax withdrawn from their salaries by the employer. The same applies if you have other income such as pension, benefits etc. More about that here.

Filing a tax return

Everybody who is liable to pay tax in Iceland must file a tax return every year, usually in March. In your tax return, you should declare your total earnings for the previous year and also your liabilities and assets. If you have paid too much or too little tax in advance, this is corrected in July of the same year as the tax return is filed. If you have paid less than you should have, you are required to pay the difference, and if you have paid more than you should have, you receive a refund.


Tax returns are done online. All taxpayers aged sixteen or older receive a password at their legal residence. If a tax return is not filed, the Iceland Revenue and Customs will estimate your income and calculate the dues accordingly.


The Iceland Revenue and customs has published directions on how to “Process your own tax issues” in the following languages:







Instructions on how to file a tax return is available in five languages. See PDFs here below.

Starting a new job

Everybody working in Iceland must pay taxes. Taxes on your wages consist of: 1) income tax to the state and 2) local tax to the municipality. Income tax is divided into brackets, and the tax percentage is dependent on the wages of the worker. The website of the Iceland Revenue and Customs (www.rsk.is) contains information on the amount of tax deducted based on the amount of income.


The amount of tax paid is stated on your payslip. It is important to keep your payslips to prove that your taxes have been paid.  


When starting a new job, it is important to remember some important things. First, the employee must inform their employer whether or not their personal tax allowance should be used when calculating withholding tax and, if so, what proportion to be used (full or part).


The employee also needs to specify the tax bracket their tax should be calculated from, if not the lowest. The employee must inform their employer if they have accrued personal tax allowance or wish to use the personal tax allowance of their spouse.


Employees can find information on how much of their personal tax allowance they have used on the website of the Iceland Revenue and Customs, www.rsk.is. If required, employees can retrieve an overview of their used personal tax allowance during the current tax year to submit to their employer.

Value added tax

Those who are selling goods and services in Iceland must declare and pay VAT, 24% or 11%, which must be added to their price of the goods and services they are selling.


In general, all foreign as well as domestic companies and self-employed business owners selling taxable goods and services in Iceland needs to register their business for VAT. They are obliged to complete a registration form RSK 5.02 and submit it to the Directorate of Internal Revenue. Once they have registered they will be given a VAT registration number and a registration certificate. VOES (VAT on Electronic Services) is a simplified VAT registration that is available to certain foreign companies.


Exempt from the obligation to register for VAT are those who sell labor and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity (was 1.000.000 ISK before 1. of January 2017). The registration duty does not apply to employees.


More information about value added tax can be found on the website of the Iceland Revenue and Customs.

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