Taxes in Iceland
Tax Rates for the 2016 income year, for limited liability companies and limited partnership companies is 20%.
The tax rate for other corporations (e.g. partnerships limited or otherwise) is 36%.
Capital Gains Tax
Capital gains from the sale of shares are treated as taxable income in the year the sale takes place. Capital gains tax rate for companies in Iceland is 18% in the year 2016.
Value Added Tax
The general VAT–Tax Rate in Iceland is 24%. A number of specific consumer goods and services are subject to a lower VAT rate of 11%. Among these services are:
Foods, hotel accommodation, newspapers and books, heating, electricity and fuel.
Other Taxes, Fees and Depreciation
Social Security Contributions
All Companies pay a mandatory contribution 7.35% of salary costs towards Social Security, the Bankruptcy Fund and Market Charge.
Both employees and employers are required to pay premiums into pension funds: collectively a minimum of 12% of gross salary. The employee pays 4%, deductible from the income tax base, and employer provides a minimum of 8%.
Furthermore, employees may choose to make additional payments of up to 4% into pension funds. If employees choose to make the additional payments, the employer is obliged to pay an additional 2% premium to the pension funds for the benefit of the employees.
Depreciation of cost is allowed under Icelandic Tax Law, in the following table you can see the relative rates of depreciation, and furthermore depreciation schemes can be a part of incentives for new direct investment according to an investment agreement.
|Passenger cars||10% - 20%|
|Ships and equipment for ships||10% - 20%|
|Aircraft and flight equipment||10% - 20%|
|Industrial machinery and equipment||20% - 30%|
|Office equipment||20% - 35%|
|Other machinery, equipment and vehicles||20% - 35%|
Building and other structures; e.g. office
and commercial buildings
|1% - 3%|
|Industrial plants, storage facilities etc.||3% - 6%|
|Quays and greenhouses||6% - 8%|
|Wells, electric transmission lines, work camps||7.5% - 10%|
|Acquired goodwill||10% - 20%|
|Patents, copyrights, and other similar rights||15% - 20%|
Financial Activity Tax
For the year 2015 a Financial Activity Tax of 5.5% is levied on banks, insurance companies and other financial institutions. The Tax Base is total salary payments.
Specific Financial Activity Tax
A Specific Financial Activity Tax of 6% is placed on entities that pay the Financial Activity Tax. The income tax base exceeds 1,000,000,000. ISK.
Double Taxation Treaties
Following is a list of double taxation treaties that exist between Iceland and relevant countries: Barbados, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Greece, Greenland, Holland, Hungary, India, Ireland, Italy, Korea, Latvia, Lithuania, Luxembourg, Malta, Mexico, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, UK, Ukraine, United States of America, Vietnam.
Persons that stay in Iceland for a period of 6 months or longer over a 12-month period and or are residents registered in the national registry are liable for taxation in Iceland.
Non-residents staying for a period of 6 months or longer over a 12 month period are subject to tax on their income earned for taxable year. Non-residents staying for a period of 6 months or less are taxed on Icelandic source income based on the period stayed in the country. It is possible to apply for an exemption with RSK through a double taxation treaty.
Income Tax: Individuals
The Icelandic Income Tax system for Individuals is a 3 tiered system based on an individual’s level of income. The tax itself is divided in two parts: state tax and municipality. For the income year 2015 the following applies:
Tier 1: wages up to ISK 336,035 monthly are subject to a 37.13% tax bracket
Tier 2: wages between 336,036 and 836,990 ISK are subject to a 38.35% tax bracket
Tier 3: any wages over 836,990 ISK are subject to a 46.25% tax bracket
Capital Income Tax
A 20% Capital Income Tax is levied on gains from bank deposits, investment funds, bonds etc.
An individual is subject to 20% tax on any share dividends received. Liquidation of shares that is in excess of the purchase price is also subject to 20% tax.
Capital Gains Tax
Gains from the sale of privately owned property are subject to 20% tax. If property has been owned for more than 2 years it is exempt from taxation.
Gains from the sale of shares is 20%
Every taxpayer of 16 years and older is entitled to personal tax credits.
Personal tax credits for an individual in 2016 are ISK 51,920 per month or 623,040 over the year.
Should a person move to or from Iceland, he or she will receive personal tax credits for the period they reside in Iceland. The period is calculated in days.