VAT 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?
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), campsites, food and catering, passenger transport, travel-agency services, access to gyms/swimming pools, books, newspapers, magazines, radio/television subscriptions, condoms and reusable nappies. Note: alcohol is taxed at the 24% standard rate, not the reduced one.
- Zero rate (0%): Exports of goods and services, international transport, services to foreign parties.
- Exempt (no VAT): Healthcare, social services, education, libraries/museums, public transport, insurance, banking/financial services, the lease of real estate, funeral services.
Registration threshold: 2,000,000 kr. of taxable turnover in any 12-month period.
When does it apply?
- You are a consumer buying goods or services in Iceland.
- You are a business with taxable turnover over 2,000,000 kr.
What to do if you believe you have been charged the wrong VAT in Iceland
- Check receipts — VAT should be itemised separately. If you run a business, make sure input VAT is correctly recorded for deduction.
- If you run a business, you file a VAT return every two months — the due date is 1 month and 5 days after the end of each period. Electronic filing is mandatory.
What should you NOT do?
- Don't charge VAT if you are below the registration threshold — it is not permitted.
- Don't file late — late VAT returns lead to penalties and interest.
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 VAT rates in Iceland?
The standard rate is 24% on most goods and services. The reduced rate, 11%, covers food, catering, alcohol, hotel/guesthouse accommodation for less than 1 month, campsites, passenger transport, travel-agency services, gyms, books, newspapers, magazines and radio/television subscriptions. The zero rate applies to exports and international transport. Exempt categories (no VAT) cover healthcare, social services, education, public transport and financial services.
When must an Icelandic business register for VAT?
When taxable turnover exceeds 2,000,000 kr. in any 12-month period. Businesses below the threshold may not charge VAT on their invoices. Once registered, VAT returns must be filed every two months, with a due date 1 month and 5 days after the end of each period. Electronic filing is mandatory.
What should I check on a VAT receipt in Iceland?
VAT should be itemised separately on the receipt. If you run a business, input VAT must be correctly recorded for deduction. Check whether the rate used matches the category of the goods or service — a restaurant meal should be at 11% but a car repair at 24%. Late VAT returns by businesses lead to penalties and interest.
What is the value added tax (vat) right in Iceland?
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), campsites, food and catering, passenger transport, travel-agency services, access to gyms/swimming pools, books, newspapers, magazines, radio/television subscriptions, condoms and reusable nappies. Note: alcohol is taxed at the 24% standard rate, not the reduced one.Zero rate (0%): Exports of goods and services, international transport, services to foreign parties.Exempt (no VAT): Healthcare, social...
When does it apply — value added tax (vat)?
You are a consumer buying goods or services in Iceland.You are a business with taxable turnover over 2,000,000 kr.
What should I do if I believe a business charged me the wrong VAT rate in Iceland?
Check receipts — VAT should be itemised separately. If you run a business, make sure input VAT is correctly recorded for deduction.If you run a business, you file a VAT return every two months — the due date is 1 month and 5 days after the end of each period. Electronic filing is mandatory.
What should you NOT do — value added tax (vat)?
Don't charge VAT if you are below the registration threshold — it is not permitted.Don't file late — late VAT returns lead to penalties and interest.