Income Tax in Iceland (2026 Legal Guide) — Rules & Requirements
About this article
Sourced from Icelandic Acts of the Althingi, statutory instruments, and official guidance. Written in plain language for general understanding — this is educational content, not legal advice. Our editorial standards
What is this right?
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%).
| Bracket | Monthly income (ISK) | Combined rate |
|---|---|---|
| 1. | 0 – 498,122 | 31.49% |
| 2. | 498,123 – 1,398,450 | 37.99% |
| 3. | Over 1,398,450 | 46.29% |
Personal tax credit:
- Per month: 72,492 kr.
- Per year: 869,898 kr.
- Granted to all individuals aged 16 and over with legal domicile in Iceland.
- An unused personal tax credit from one month can be carried over to the next month within the same tax year.
When does it apply?
- You earn income in Iceland — employment income, self-employment income or other taxable income.
- Everyone with legal domicile in Iceland is taxable on their worldwide income.
What to do if you believe your income tax or personal tax credit is wrong in Iceland
- Check your tax card — make sure the personal tax credit is correctly allocated.
- You can split the personal tax credit between multiple employers through Skatturinn's service portal (RSK).
- If you are married or in a registered partnership, an unused personal tax credit can be transferred between spouses.
What should you NOT do?
- Don't ignore the tax card — an incorrect allocation of the personal tax credit can lead to an unexpected tax bill at year-end.
- Don't confuse the tax brackets — each bracket applies only to income within its range, not to your total income.
About Tax Rights in Iceland
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.
Common Questions
What are the income-tax brackets in Iceland?
Iceland has three progressive brackets that combine state tax and municipal tax. Bracket 1 (up to 498,122 kr. a month) is taxed at 31.49%. Bracket 2 (498,123 to 1,398,450 kr.) is 37.99%. Bracket 3 (over 1,398,450 kr.) is 46.29%. Each bracket applies only to income within its range, not to your total income.
How does the personal tax credit work in Iceland?
All individuals aged 16 and over with legal domicile in Iceland receive a personal tax credit that is deducted from their tax. It is 72,492 kr. a month or 869,898 kr. a year. An unused credit from one month can be carried over to the next month within a tax year. Spouses and registered partners can transfer an unused credit between themselves.
Can I split my personal tax credit between employers in Iceland?
Yes. You can split the personal tax credit between multiple employers through Skatturinn's service portal (RSK). Check the tax card carefully — an incorrect allocation can lead to an unexpected tax bill at year-end. Everyone with legal domicile in Iceland is taxable on their worldwide income under the Income Tax Act (Lög nr. 90/2003).
What is the income tax rates right in Iceland?
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 (ISK)Combined rate1.0 – 498,12231.49%2.498,123 – 1,398,45037.99%3.Over 1,398,45046.29%Personal tax credit:Per month: 72,492 kr.Per year: 869,898 kr.Granted to all individuals aged 16 and over with legal domicile in Iceland.An unused personal tax credit from one month can be carried over to the next month within the same tax year.
When does it apply — income tax rates?
You earn income in Iceland — employment income, self-employment income or other taxable income.Everyone with legal domicile in Iceland is taxable on their worldwide income.
What should I do if I believe Skatturinn has calculated my income tax or personal tax credit incorrectly in Iceland?
Check your tax card — make sure the personal tax credit is correctly allocated.You can split the personal tax credit between multiple employers through Skatturinn's service portal (RSK).If you are married or in a registered partnership, an unused personal tax credit can be transferred between spouses.
What should you NOT do — income tax rates?
Don't ignore the tax card — an incorrect allocation of the personal tax credit can lead to an unexpected tax bill at year-end.Don't confuse the tax brackets — each bracket applies only to income within its range, not to your total income.