Tax System
The Icelandic tax system is relatively simple and effective. Current objectives aim to reduce tax rates further, broaden the tax base and conclude additional double taxation conventions. These actions will further increase the competitiveness of Icelandic corporations and attract foreign investors.
Corporate income tax stands at 18% – one of the lowest tax rates within the OECD member countries.
Some characteristics of Icelandic tax law:
- Corporate income tax of 18% on net income only
- No municipal taxes on corporate profits
- No tax on dividends received by corporations
- No requirements relating to percentage of stock owned
- No alternative minimum tax
- No net wealth taxes levied on net capital
- No branch profits tax levied on repatriated profits from branches
- Participation exemption available to domestic legal entities
- Consolidated returns available for corporations under 90% common control
- Double taxation treaties available
- Foreign tax credit available to avoid double taxation in the absence of tax treaties
- No legislation on controlled foreign corporations
- No legislation on thin capitalisation
- No basket system regarding foreign tax credits
Taxes on businesses
Companies based in Iceland and Icelandic branches of foreign-based companies are liable for corporate income tax on their net earnings. The national corporate tax rate is 18%. No local municipal corporate taxes are charged.
Net worth taxes on companies and individuals in Iceland have been abolished.
Real estate taxes are paid locally by businesses, along with local service charges.
Personal Income Taxes
Individuals resident in Iceland are liable to income tax at the rate of 37.22% on all earned yearly income between ISK 0 - 2,4m (USD 0 - 19,200), 40.12% on income between 2,4m - 7.8m (USD 19,200 - 62,400), and 46.12% on income above 7.8m (USD 62,400). Personal income tax is withheld at source (pay as you earn). It is divided into national income tax (24.1%, 27% and 33%) and municipal income tax (averaging 13.12%). Individuals get reimbursement of ISK 44.205 pr. month.
The financial income of individuals is taxed at a rate of 10%.
Resident individuals are taxed on their worldwide income.
Non-resident individuals become tax residents if they stay in the country for more than 183 days in any 12-month period.
A non-resident individual is taxed on Icelandic-sourced income.
"Doing Business in Iceland", the detailed booklet written by the Invest in Iceland Agency and major accounting firms in Iceland, with assistance from the Internal Revenue Directorate, the Ministry of Industry and Commerce, and other bodies is being revised and will be available shortly.