Iceland tax system: audit, reporting and optimization of taxation of icelandic companies and individuals: VAT, income tax and capital gains

Basic taxes (briefly)

Personal tax 33-46%
Corporate tax (in detail) The corporate income tax rate is a flat rate of 20%.
Capital gains tax. Details Capital gains are subject to income tax.
VAT. Details The standard VAT rate is 24%. A preferential VAT rate of 11% applies to certain goods and services.
Other taxes Real property tax; Inheritance tax; Social security contribution; Financial activities tax
Government fee No
Stamp duty 0,8-1,6%

International tax agreement

Albania, Austria, Barbados, Belgium, Canada, China, Croatia, Czech Republic, Estonia, France, Germany, Greece, Hungary, India, Ireland, Italy, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Ukraine, United Kingdom, USA, Vietnam
   
Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, Brunei Darussalam, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Curacao, Denmark, Dominica, Faroe Islands, Finland, Gibraltar, Greenland, Grenada, Guatemala, Guernsey, Hong Kong, Isle of Man, Jamaica, Jersey, Liberia, Liechtenstein, Macau, Marshall Islands, Mauritius, Monaco, Montserrat, Niue, Panama, Qatar, Saint Kitts and Nevis, Saint-Lucia, Saint Vincent and Grenadines, Samoa, San Marino, Seychelles, Sint Maarten, Sweden, Turks and Caicos Islands, United Arab Emirates, Uruguay, Vanuatu


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Taxation of individuals

Residents pay tax on worldwide income, non-residents pay tax on income from sources in Iceland.

Income tax is charged at progressive rates:

  • Income up to 4,042,995 ISK is taxed at 20.6%;
  • income from 4,042,995 to 11,350,472 ISK is taxed at 22.75%;
  • income over 11,350,472 ISK is taxed at 31.8%.

In addition, a municipal tax is paid at a rate of 12.44% to 14.52%, depending on the municipality.

Capital gains tax is paid at a rate of 22%.

Income tax

Income tax is paid by resident companies on their worldwide income, non-resident companies on income from sources in Iceland.

The corporate income tax rate is 20%.

Capital gains are subject to income tax. There are exemptions for profits from the sale of shares and dividend income. Interest income from bank deposits and certain other financial instruments is taxed at 22%.

Social contributions

Employers pay:

  • Social Security contribution at the rate of 6.35% (other rates apply in some cases).
  • Pension contribution at the rate of 11.5%.
  • In addition, 2% is paid to private pension funds if the employee himself contributes 4% to them.
  • 0.1% to the rehabilitation fund.

Employees pay:

  • Pension contribution at 4%. In addition, 4% may be paid to mandatory or voluntary pension funds (this amount is tax deductible).
  • Contribution to senior citizens' fund is paid in a fixed amount if a certain level of income is exceeded.

Tax on financial activities

Financial institutions, including insurance companies, pay tax at a rate of 5.5% on payroll.

And an additional tax of 6% is paid if the total payroll exceeds 1.000.000 ISK.

VAT

The standard rate of VAT is 24%.

A preferential VAT rate of 11% applies to some goods and services.

Withholding taxes

Tax is withheld at 20% when dividends are paid to a non-resident company and 22% to an individual.

Companies from EEA countries can then receive a tax refund.

When interest is paid, tax is withheld at a rate of 12%.

For royalties, tax is withheld at the rate of 20% for companies and 36.94% to 46.24% for individuals.

Tax may be withheld on certain other income payments.

Property taxes

An annual municipal tax is levied on real estate.

Inheritance tax

Inheritance tax is levied at a rate of 10%.

Non-taxable limits may apply.

No tax is levied on spouses.

Stamp Duty

Stamp Duty is levied on transactions involving real estate and ships.

The rate is 0.8% for individuals and 1.6% for businesses.

CFC rules

The CFC rules apply if one owns or controls, directly or indirectly, more than 50% of the shares in a company from a low-tax jurisdiction (less than 2/3 of the Icelandic tax rate).

The CFC rules do not apply if the company is located in a country with a double tax treaty with Iceland with an appropriate exchange of information article and its income is not predominantly financial income. In addition, the CFC rules do not apply to a company registered in an EEA country doing business there and the Icelandic tax authorities are able to obtain information about the company on the basis of the relevant agreement.

Double taxation treaties

Iceland has entered into the following tax information exchange arrangements with 89 jurisdictions:

42 DTCs: Albania, Austria, Barbados, Belgium, Canada, China, Croatia, Czech Republic, Estonia, France, Germany, Greece, Hungary, India, Ireland, Italy, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Switzerland, Ukraine, United Kingdom, USA, Vietnam.

50 TIEAs: Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Belize, Bermuda, Botswana, Brunei Darussalam, British Virgin Islands, Cayman Islands, Cook Islands, Costa Rica, Curacao, Denmark, Dominica, Faroe Islands, Finland, Gibraltar, Greenland, Grenada, Guatemala, Guernsey, Hong Kong, Isle of Man, Jamaica, Jersey, Liberia, Liechtenstein, Macau, Marshall Islands, Mauritius, Monaco, Montserrat, Niue, Panama, Qatar, Saint Kitts and Nevis, Saint-Lucia, Saint Vincent and Grenadines, Samoa, San Marino, Seychelles, Sint Maarten, Sweden, Turks and Caicos Islands, United Arab Emirates, Uruguay, Vanuatu.

Currency controls

Currency controls were introduced in 2008 in connection with the banking crisis.

Currently, most restrictions have been lifted. Certain restrictions remain: in respect of international transfers in Icelandic krona, transactions in derivatives except for hedging transactions, currency exchange transactions without the participation of financial institutions.

    Taxes of Iceland

    Min. rate for corporate tax 20%
    Capital gains tax Regular rate
    VAT 24%
    Withholding tax 20%/12%/20%
    Exchange control Yes
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