Business VAT Registration in Iceland (2026): the 2 million kr. threshold and returns (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?
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 happens if you file late or cross the threshold without registering:
- Rates: standard 24% and a reduced rate of 11% under Article 14. Zero-rated turnover (Article 12) covers exports, international transport and defined services provided to foreign parties and used abroad. Exempt sectors (Article 2(3)) — healthcare, social services, education, culture, the lease of real estate, insurance, banking — cannot deduct input VAT.
- Registration threshold: 2,000,000 kr. in any rolling 12-month period (Article 4(3)), unchanged since 1 January 2017. Registration becomes mandatory as soon as it is foreseeable that sales will reach the threshold. Voluntary registration is allowed below the threshold when taxable sales exceed VAT-bearing costs or when a pre-business investment relates to future taxable sales.
- How to register: file RSK 5.02 in Skatturinn's service portal. You need a kennitala (foreign individuals through Registers Iceland; foreign companies through the Register of Enterprises) and login with electronic ID. File at least 8 days before the business starts.
- Two-month returns (Article 24): Jan-Feb, Mar-Apr, May-Jun, Jul-Aug, Sep-Oct, Nov-Dec. The due date is the 5th of the second month after the end of the period (so Jan-Feb is due on 5 April). Electronic filing through the service portal is mandatory.
- Annual returns are available to businesses with turnover under 4,000,000 kr. in a calendar year, on application before 15 February. The annual return is due on 5 February of the following year.
- Input VAT (Article 16): deductible on goods and services used in taxable activity, but only if the seller was on the VAT register on the date of sale. Non-deductible categories include private use, housing, canteen/meals, passenger cars (unless resold), entertainment and gifts.
- Record-keeping: 7 years from the end of the financial year under Lög nr. 145/1994, Article 20. Annual accounts 25 years; cash-register tapes 3 years.
- Reverse charge: an Icelandic buyer not on the VAT register who buys electronic services from a foreign seller must self-assess and remit VAT (Article 35). Foreign B2C sellers of electronic services into Iceland register for VOES if annual sales exceed 1,000,000 kr.
When does it apply?
- You run a business, are a contractor or a sole trader in Iceland and taxable sales are about to or have exceeded 2,000,000 kr. over 12 months.
- You are a foreign company selling goods or services into Iceland — either B2B through an Icelandic representative or B2C electronic services through VOES.
- You want to register voluntarily to recover input VAT on pre-business investments that will become taxable.
- You missed a two-month filing deadline, received a warning-list notification, or VAT was reassessed retroactively.
- You want to apply for a refund to a foreign company under Regulation nr. 1243/2019.
What to do if you run a business in Iceland and need to register for VAT or file a return
- Check the threshold monthly — if taxable sales will exceed 2,000,000 kr. over a rolling 12-month window, register before the next sale.
- File RSK 5.02 in Skatturinn's service portal at least 8 days before the activity starts. Registration is usually issued within 8 days. Skatturinn can refuse if you had estimated taxes in any of the last 3 years.
- Mark the calendar: two-month returns and payment are due on the 5th of the month two months after the end of the period. For annual filing (under 4 million kr.), apply before 15 February and file before 5 February of the following year.
- Keep invoices with the seller's VAT number. Input VAT is only deductible if the seller was on the register on the date of sale.
- Forgotten input VAT of up to 100,000 kr. can be moved to a later return within the same financial year. Larger amounts require a corrected return (RSK 10.26).
- Split a mixed purchase by the proportion of taxable turnover to total turnover — write the calculation down.
- Foreign companies apply for a refund with form RSK 10.29 under Regulation nr. 1243/2019, with a minimum of 75,000 kr. for a two-month period or 15,000 kr. for a full/partial year.
- If your VAT number is on the warning list (vánúmer) due to unfiled returns or payments, file and pay in full and then email [email protected] to request removal.
What should you NOT do?
- Don't charge VAT on invoices if you are not registered — unregistered businesses may not add VAT to their invoices.
- Don't cross the 2,000,000 kr. threshold without registering. Skatturinn can reassess retroactively up to 6 years (10 years for income or assets in low-tax countries), with a surcharge of 1% per day (up to a maximum of 10%) plus default interest.
- Don't file late. The penalty fee for unfiled returns is 5,000 kr. per missing return once an estimate is in place, only waived where there is a valid external reason.
- Don't claim input VAT on non-deductible categories — private use, housing, passenger cars (unless resold or used in licensed tourist transport), meals, gifts and entertainment are specifically excluded.
- Don't assume there are extensions to the filing deadlines. Icelandic law grants none — plan everything around the 5th of the month.
- Don't keep charging VAT after deregistration — all collected tax must be remitted without an input-VAT deduction.
- Don't keep incomplete records — 7 years for invoices and bookkeeping; 25 years for annual accounts.
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
When must an Icelandic business register for VAT?
When taxable sales exceed 2,000,000 kr. in any rolling 12-month period under Article 4(3), unchanged since 1 January 2017. Registration becomes mandatory as soon as it is foreseeable that sales will reach the threshold. Voluntary registration below the threshold is allowed in defined cases — for example, when taxable sales will exceed VAT-bearing costs.
How often do Icelandic businesses file a VAT return?
Every two months as a rule (Jan-Feb, Mar-Apr and so on), due on the 5th of the second month after the end of the period, so Jan-Feb is due on 5 April. Businesses with turnover under 4,000,000 kr. a year can apply for annual filing before 15 February; the annual return is due on 5 February of the following year. All returns are electronic through Skatturinn's service portal.
What are the Icelandic VAT rates for 2025/2026?
Standard 24% and reduced 11% under Article 14 of Lög nr. 50/1988. Zero-rated turnover (Article 12) covers exports, international transport and deliveries to ships/aircraft. Exempt sectors (Article 2(3)) — healthcare, social services, education, culture, banking, insurance, the lease of real estate — cannot deduct input VAT, unlike zero-rated businesses.
What happens if I cross the VAT threshold without registering in Iceland?
Skatturinn can reassess retroactively up to 6 years (10 years for low-tax countries). You owe the VAT that was not paid plus a surcharge of 1% per started day (up to a maximum of 10%) under Article 27, plus default interest under Article 28 when payment is more than a month past the due date.
Do foreign companies have to register for VAT in Iceland?
It depends on what they sell. A foreign B2C seller of electronic services must register for VOES if annual sales into Iceland exceed 1,000,000 kr. — VOES filers file every two months and cannot deduct input VAT. Foreign companies with taxable activity but no fixed establishment in Iceland must register through an Icelandic representative who bears joint liability. Unregistered foreign companies can apply for a refund under Regulation nr. 1243/2019.
What is the business vat registration and self-assessment right in Iceland?
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 happens if you file late or cross the threshold without registering:Rates: standard 24% and a reduced rate of 11% under Article 14. Zero-rated turnover (Article 12) covers exports, international transport and defined services provided to foreign parties and used abroad. Exempt sectors (Article 2(3)) — healthcare, social services, education, culture, the lease of real estate, insurance, banking —...
When does it apply — business vat registration and self-assessment?
You run a business, are a contractor or a sole trader in Iceland and taxable sales are about to or have exceeded 2,000,000 kr. over 12 months.You are a foreign company selling goods or services into Iceland — either B2B through an Icelandic representative or B2C electronic services through VOES.You want to register voluntarily to recover input VAT on pre-business investments that will become taxable.You missed a two-month filing deadline, received a warning-list notification, or VAT was reassessed retroactively.You want to apply for a refund to a foreign company under Regulation nr. 1243/2019.
What should I do if I am starting a business in Iceland and want to register it for VAT, or I crossed the turnover threshold without registering?
Check the threshold monthly — if taxable sales will exceed 2,000,000 kr. over a rolling 12-month window, register before the next sale.File RSK 5.02 in Skatturinn's service portal at least 8 days before the activity starts. Registration is usually issued within 8 days. Skatturinn can refuse if you had estimated taxes in any of the last 3 years.Mark the calendar: two-month returns and payment are due on the 5th of the month two months after the end of the period. For annual filing (under 4 million kr.), apply before 15 February and file before 5 February of the following year.Keep invoices...
What should you NOT do — business vat registration and self-assessment?
Don't charge VAT on invoices if you are not registered — unregistered businesses may not add VAT to their invoices.Don't cross the 2,000,000 kr. threshold without registering. Skatturinn can reassess retroactively up to 6 years (10 years for income or assets in low-tax countries), with a surcharge of 1% per day (up to a maximum of 10%) plus default interest.Don't file late. The penalty fee for unfiled returns is 5,000 kr. per missing return once an estimate is in place, only waived where there is a valid external reason.Don't claim input VAT on non-deductible categories — private use,...