Iceland is a Nordic island country located in the North Atlantic Ocean, with a unique taxation system. In this article, we will discuss how the taxation system works in Iceland, double taxation agreements, the main taxes expats need to be aware of, special tax breaks that could apply to expats, how and when to file a tax return as an expat, and tax exit procedures for anyone leaving Iceland to move abroad.
The Taxation System in Iceland
The taxation system in Iceland is progressive, meaning that the more you earn, the higher your tax rate will be. The tax year in Iceland runs from January 1st to December 31st, and taxes must be filed by the end of February of the following year.
There are several taxes that individuals and businesses in Iceland are required to pay. These include personal income tax, corporate income tax, value-added tax (VAT), and social security contributions.
Double Taxation Agreements
Iceland has signed double taxation agreements with over 50 countries, including the United States, the United Kingdom, and Canada. These agreements are designed to prevent individuals and companies from being taxed twice on the same income.
If you are an expat living in Iceland and your home country has signed a double taxation agreement with Iceland, you may be able to avoid being taxed twice on your income. However, it is important to check the terms of the specific agreement as they can vary between countries.
Main Taxes in Iceland
Personal income tax
All residents in Iceland are required to pay personal income tax on their worldwide income. The personal income tax rate varies depending on income levels and ranges from 22.75% to 46.24%.
Corporate income tax
Companies registered in Iceland are required to pay corporate income tax on their profits earned in Iceland. The corporate income tax rate is currently 20%.
Value-added tax (VAT)
The VAT rate in Iceland is currently 24%. This tax is applied to most goods and services, including imports.
Social security contributions
All employees in Iceland are required to make social security contributions. The employer and employee each contribute to social security, with the total contribution being 14.48% of the employee’s salary.
Special Tax Breaks
There are several special tax breaks that could apply to expats living in Iceland. These include:
Tax deductions
Expats may be eligible for tax deductions for certain expenses, including moving expenses and travel expenses related to work.
Reduced personal income tax rate
Expats who have a high level of expertise in a specific field may be eligible for a reduced personal income tax rate.
Filing a Tax Return in Iceland
If you are an expat living in Iceland, you are required to file a tax return if you meet certain criteria. If you are a resident in Iceland, you are required to file a tax return if your income exceeds ISK 1,710,000 per year. If you are a non-resident and earn income within Iceland, you must also file a tax return.
The tax return must be filed annually by the end of February of the following year. The Icelandic Tax and Customs Administration provides an online platform where you can file your tax return, and it is recommended that you seek the assistance of a tax professional to ensure that you file correctly and take advantage of any applicable tax breaks.
Tax Exit Procedures for Iceland
If you are leaving Iceland to move abroad, you must complete a tax exit procedure with the Icelandic Tax and Customs Administration. This procedure involves filing a tax return for the year in which you leave, paying any outstanding taxes, and obtaining a tax clearance certificate.
The tax clearance certificate is required to obtain a residence permit or visa in another country. Failure to complete the tax exit procedure can result in a fine and other legal consequences.
The taxation system in Iceland is progressive, and individuals and businesses are required to pay several taxes, including personal income tax, corporate income tax, value-added tax, and social security contributions. Expats living in Iceland may be eligible for special tax breaks, and it is important to file a tax return correctly and complete the tax exit procedure if leaving the country. It is recommended that you seek the assistance of a tax professional to ensure that you comply with all tax regulations in Iceland.