Tax Rights
Income tax, the personal tax credit, VAT, capital gains tax, appeals, tax audits, payment plans and the social security contribution under Icelandic law.
Covered in this guide:
Income tax in Iceland is progressive in three brackets under lög um tekjuskatt (the Income Tax Act, Lög nr. 90/2003) and combines state tax and municipal tax (~14.94%). All residents aged 16 and over receive a personal tax credit (persónuafsláttur) that is transferable between spouses. Capital income is taxed at 22%. VAT (Lög nr. 50/1988) is 24% standard and 11% reduced — businesses register once turnover exceeds 2 million kr. Skatturinn (the tax authority) handles the assessment. You can appeal to yfirskattanefnd (the State Tax Board of Appeals) and from there to the district courts. Employers pay a social security contribution (tryggingagjald) under Lög nr. 113/1990.
Key Laws
Lög um tekjuskatt (Tekjuskattslög)
Lög nr. 90/2003
Progressive income-tax brackets, the personal tax credit, capital gains tax, taxation of worldwide income
Lög um virðisaukaskatt
Lög nr. 50/1988
24% standard VAT rate, 11% reduced rate, the registration threshold
Lög um tryggingagjald
Lög nr. 113/1990
The employer social security contribution that funds pensions, the health system and unemployment benefits
Income Tax Rates
Iceland has a progressive income tax with three brackets. The combined rate consists of state income tax and municipal tax (the average municipal tax is about 14.94%).BracketMonthly income...
The Right to Appeal a Tax Assessment
Iceland has a two-step administrative appeal route for tax disputes:Step 1 — Internal review by Skatturinn:Send a written complaint to Skatturinn (RSK) within 60 days of the date of the...
Rights During a Tax Audit
As a taxpayer you have certain rights during a tax audit:Written notification: Audits are conducted through formal written communication under strict procedural rules.Right to a representative: A...
Tax Payment Plans
If you owe taxes and cannot pay in full, you may be able to set up a payment plan:Conditions: All tax returns and the necessary documents must have been filed. The debt must be under 2,000,000 kr....
Value Added Tax (VAT)
In Iceland, VAT is levied on most goods and services:Standard rate: 24% — applies to most goods and services.Reduced rate: 11% — applies to: hotel/guesthouse accommodation (less than 1 month),...
Capital Gains Tax
Capital gains in Iceland are taxed as capital income:Standard rate: 22% on capital income (gains on real estate, dividends, interest, rental income).Exemption for your own home: The gain on your own...
Social Security Contribution and Pension Contributions
Iceland has mandatory contributions to social security and pension funds:Employer social security contribution (tryggingagjald):General rate: approx. 6.35-6.90% of total wages — paid in full by the...
Filing a Tax Return
All taxpayers in Iceland must file an annual tax return:Filing deadline: 13 March 2026 for the 2025 income year (individuals filing electronically; Skatturinn does not grant individuals extensions)....
Business VAT Registration and Self-Assessment
VAT in Iceland (VSK) is administered by Skatturinn under Lög nr. 50/1988. This right covers what matters to businesses: when you must register, how you file, what you can and cannot deduct, and what...