VAT (Value Added Tax)
Written in plain language for general understanding. This is educational content, not legal advice. Based on Icelandic Acts of the Althingi, statutory instruments, and official guidance.
Icelandic National Law
What is this right?
Iceland applies VAT on most goods and services:
- Standard rate: 24% — applies to most goods and services.
- Reduced rate: 11% — applies to: hotel/guesthouse rentals (under 1 month), campgrounds, food and catering, alcohol, passenger transport, travel agency services, spa/sauna admissions, books, newspapers, magazines, radio/TV subscriptions, condoms, and reusable nappies.
- Zero rate (0%): Exports of goods and services, international transport, services to non-residents.
- Exempt (no VAT): Healthcare, social services, education, libraries/museums, public transport, insurance, banking/financial services, rental of real property, funeral services.
Registration threshold: ISK 2,000,000 in taxable turnover within any 12-month period.
When does it apply?
- You are a consumer purchasing goods or services in Iceland.
- You are a business with taxable turnover exceeding ISK 2,000,000.
What should you do?
- Check receipts — VAT should be itemised. If you are a business, ensure input VAT is correctly recorded for deductions.
- If you are a business, file VAT returns bimonthly — due 1 month and 5 days after each period ends. Electronic filing is mandatory.
What should you NOT do?
- Don't charge VAT if you are below the registration threshold — this is not permitted.
- Don't file late — late VAT returns attract penalties and interest.
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