Taxes and Duties

Taxable income includes all kinds of income from past and present employment, business and profession, and capital. All income received by the taxpayer is taxable unless it is listed as exempt. The collection of individual income taxes (state and municipal) on employment income takes place at source (tax is witheld) each month during the income year.

More information about taxable income is available on the website of Iceland Revenue and Customs (Skatturinn).

Personal tax credit lowers the tax withdrawn from employees’ salaries. To have the right amount of tax deducted every month from the salary, employees must inform their employers at the start of their contract of employment whether to use their full or partial personal tax credit. Without permission from the employee, the employer has to deduct full tax without any personal tax credit. The same applies if you have other income such as pension, benefits etc. Read more about personal tax credit on skatturinn.is.

Sometimes people are asked not to declare the work they do for tax purposes. This is known as ‘undeclared work’. Undeclared work is illegal, and it has a negative impact both on society and the people who take part in it. Read more about undeclared work here.

Via this page by the Iceland Revenue and Customs you can log in to file your tax return. The most common method to log in is to use electronic IDs. If you don´thave electronic IDs, you can apply for a webkey/password. The application page is in Icelandic but in the fill-in field you should add your social security number (kennitala) and hit the”Áfram” button to continue.

Here you find basic information on individual taxation from the Icelandic tax authorities, in many languages.

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 as well as your liabilities and assets. If you have paid too much or too little tax at source, this is corrected in July of the same year that 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.

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 simplified directions on how to “Process your own tax issues” in the four languages, English, Polish, Lithuanian and Icelandic.

Instructions on how to file a tax return is available in five languages, English, Polish, Spanish, Lithuanian and Icelandic.

If you plan to leave Iceland, you must inform Registers Iceland and submit a tax return before you leave to avoid any unexpected tax bills/penalties.

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. The tax percentage deducted from salaries is based on the salary of the worker and the tax deductions must always be visible on your payslip. Make sure to keep a record of your payslips to prove that your taxes have been paid.  You will find more information on tax brackets on the website of Iceland Revenue and Customs.

When starting a new job, keep in mind that:

• The employee must inform their employer whether their personal tax allowance should be used when calculating withholding tax and, if so, what proportion to be used (fully or partially).
• 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 has been used by logging in to the service pages on the website of the Iceland Revenue and Customs. If required, employees can retrieve an overview of their used personal tax allowance during the current tax year to submit to their employer.

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.

VAT is called VSK (Virðisaukaskattur) in Icelandic.

In general, all foreign and domestic companies and self-employed business owners selling taxable goods and services in Iceland need to register their business for VAT. They are obliged to complete a registration form RSK 5.02 and submit it to the Iceland Revenue and Customs. 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 labour 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. 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.

Lögmannavaktin (by the Icelandic Bar Association) is free legal service to the general public. The service is offered all Tuesday afternoons from September to June. It´s necessary to book an interview before hand by calling 568-5620. More information here (only in Icelandic).

Law Students at the University of Iceland offer free legal counselling for the general public. You can call 551-1012 on Thursday evenings between 19:30 and 22:00. Check out their Facebook page for more information.

Law students at Reykjavík University provide individuals with legal counselling, free of charge. They deal with various areas of the law, including tax issues, labour market rights, the rights of residents in apartment buildings and legal issues concerning marriage and inheritance.

The legal service is situated in the main entrance of RU (the Sun). They can also be reached by phone on 777-8409 or by email at logfrodur@ru.is. The service is open on Wednesdays from 17:00 to 20:00 from September 1st until the beginning of May, except during final exams in December.

The Icelandic Human Rights Centre has also offered assistance to immigrants when comes to legal matters.