Taxes in Iceland in 2026

What taxes do you pay in Iceland in 2026

Iceland's main tax is income tax: the state and the municipality together take between 31.49% and 46.29% of a salary. Everything else is noticeably lighter - 22% on dividends and interest, 20% on company profits and 24% value added tax built into prices.

Taxes are collected by Skatturinn, Iceland's tax and customs authority (officially Ríkisskattstjóri, the Directorate of Internal Revenue). The figures below come from the Income Tax Act No. 90/2003, Skatturinn's 2026 publications.

For a reader coming from a flat-tax country the conclusion is uncomfortable: moving to Iceland almost always raises the tax on your salary. You come out ahead in three scenarios - the foreign expert relief, income that is mostly from capital, or a business run through a company.

Compare taxes in 146 countries: relocation taxes 2026

How the Icelandic tax system works

Iceland sorts a person's income into three baskets, and the basket matters more for your rate than the amount does. Employment income - salary, pensions, grants - and sole-trader profit are taxed on a progressive scale up to 46.29%. Capital income - dividends, interest, rent and capital gains - pays a flat 22%, with no personal tax credit.

Income tax has two parts: tekjuskattur goes to the treasury, útsvar to the municipality where you are registered. Your employer withholds both every month under a system called staðgreiðsla, or pay-as-you-earn withholding. In spring Skatturinn sends a pre-filled tax return, and at the end of May it settles the year: overpayments are refunded and any shortfall is split into up to seven instalments.

What changed in 2026

• Bracket thresholds and the personal credit were indexed: the first bracket now runs to $4,100 (498,122 krónur) a month and the credit is $600 (72,492 krónur).
• Spouses can no longer share the second and third brackets when one earns in the third bracket and the other does not (Act 99/2025).
• The tax-free share of income from long-term residential lettings was cut from 50% to 25% (Act 103/2025).
• Since 1 January every car pays kílómetragjald, a road charge of 6.95 krónur per km for vehicles up to 3.5 tonnes. At 15,000 km a year that is about $850 (104,000 krónur); excise duties on petrol and diesel were abolished in exchange.

Who is a tax resident in Iceland

Iceland taxes your entire worldwide income from the day you register a home here or spend more than 183 days in the country within any 12 months - and it keeps its claim for three years after you leave.

Under Article 1 of Act 90/2003, unlimited tax liability arises when you register lögheimili, your official legal domicile, in the national registry Þjóðskrá, or when you stay more than 183 days in any 12-month period, holidays included. Residence starts on the date of arrival, not on 1 January, and the personal credit for the year of the move is granted pro rata by days.

If you are in the country for less than six months, you pay only on Icelandic-source income. But work physically performed in Iceland is taxable here even when a foreign company pays the salary.

The most expensive trap is the tail after departure. A former resident stays fully taxable for three more years, counted from the 1 January after leaving: depart in March 2026 and Iceland can claim your worldwide income until the end of 2029. The only way out is proof that you have become a tax resident of another country, which in practice means a certificate of tax residence. How to get one is covered in our piece on the 183-day rule.

Iceland tax residency rules: how to become resident and count days

Iceland taxes your worldwide income from the day you register a home here or spend more than 183 days in the country in any 12 months. Holidays count toward the stay, and residence starts on the day of arrival, not on 1 January.

The country lets go reluctantly: after leaving, tax liability lasts 3 more years unless you prove residence in another country. Northern hospitality extends to the tax office, which is in no hurry to see you off. A resident pays progressive tax on worldwide income, a non-resident only on Icelandic income.

Mistakes cost more: an open home registration keeps you an Icelandic resident while your new country also taxes the income. Murblz support removes these risks: we count the days, close the registration, obtain a residence certificate from the new country and apply the double tax treaty. We guarantee professional work and a transparent process, and in most cases a result on the first filing.

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Iceland income tax rates and brackets for 2026

The 46.29% rate sounds brutal, but it only bites on the part of a salary above $12,000 (1,398,450 krónur) a month. Below that threshold the rates are 31.49% and 37.99%.

The scale is marginal: a higher rate only applies to the slice of income above each threshold. Each municipality sets its own share within a corridor fixed by Act No. 4/1995 - from 12.44% to 14.97%. Employers withhold the average of 14.94%, and the difference is settled in the annual assessment. Reykjavík sits at the top of the corridor; the gap between municipalities is up to $210 (25,000 krónur) a month on a salary of $8,200 (1 million krónur).

The personal tax credit (persónuafsláttur) comes straight off the tax bill: $600 (72,492 krónur) a month, $7,100 (869,898 krónur) a year. Every resident aged 16 and over gets it, and it effectively wipes out the tax on roughly the first $1,900 (230,000 krónur) of the base. In 2026 a spouse's unused credit can be transferred in full. If you have several employers, only one may apply the credit - otherwise a bill arrives in May.

Before the scale applies, the 4% pension contribution and up to 4% of voluntary pension savings are deducted. Few other deductions exist: mortgage interest, medical costs and tuition do not reduce the base. Instead Iceland pays means-tested benefits: vaxtabætur (a mortgage interest subsidy), barnabætur (child benefit) and húsnæðisbætur (housing benefit for tenants).

Average salary in Iceland in 2026 and what is left after tax

Half of Iceland's full-time employees earn more than $6,800 (826,000 krónur) a month in regular pay, and about $4,900 (597,000 krónur) of that reaches their account after tax.

In its latest data, for 2025, Statistics Iceland (Hagstofa Íslands) puts mean regular full-time pay at $7,500 (913,000 krónur) a month, the median at $6,800 (826,000 krónur) and mean total earnings including overtime at $8,700 (1,058,000 krónur). Chief executives earned around $21,000 (2.5 million krónur) on average, library and postal clerks around $4,900 (600,000 krónur). There is no statutory minimum wage: minimum pay by occupation is set in collective agreements.

An example calculation at 2026 withholding rates: 4% pension, the average municipal rate of 14.94%, no reliefs.

For the employer, a worker costs about 18% more than gross pay, and these contributions have no ceiling:

The upside is that 11.5% lands in the employee's own pension account, not the general budget. Nationals of the European Economic Area (the European Union plus Iceland, Norway and Liechtenstein) with an A1 certificate proving social security cover at home need not pay into an Icelandic pension fund. Two fixed levies apply above $22,000 (2,617,618 krónur) of annual income: $190 (22,200 krónur) for public broadcasting (útvarpsgjald) and $120 (14,614 krónur) for the elderly fund.

Taxes in Iceland for foreigners and non-residents

Citizenship is irrelevant for Icelandic tax. A foreign resident pays exactly what an Icelander pays, while a non-resident pays only on Icelandic-source income - often at higher rates than expected.

Treaty relief is never automatic. You need an application on form RSK 5.42 with a residence confirmation, and it applies only from the date Skatturinn receives it - never retroactively. Tax withheld above the treaty rate is refunded via form RSK 5.43 within six years.

Days are counted in a rolling 12-month window: two four-month projects in different calendar years can easily make you resident. European Economic Area residents who earn at least 75% of their income in Iceland may choose to be taxed as residents, with all deductions (Article 70a of Act 90/2003). Iceland scrapped its visa for remote workers in May 2026 - what replaced it is on our page about the Iceland digital nomad visa.

What is the corporate tax rate in Iceland

An Icelandic company pays 20% on its profit - less than half the top rate on salaries. Pick the wrong legal form, though, and the rate jumps to 37.6%.

The 20% rate applies to an ehf (einkahlutafélag, a private limited company) and an hf (hlutafélag, a public limited company). A partnership with unlimited liability (sameignarfélag) registered as a separate taxpayer pays 37.6%.

• The minimum share capital of an ehf is $4,100 (500,000 krónur, Act No. 138/1994).
• The managing director and half of the board must live in Iceland. This does not apply to nationals and residents of the European Economic Area and the European Free Trade Association; everyone else needs a ministry exemption.
• Losses carry forward for 10 years; there is no carry-back.
• Dividends received and gains on shares are effectively exempt, because they can be deducted in full. For a holding company this is the main attraction.
• Interest on loans from related parties (a parent company or the owners) is deductible only up to 30% of EBITDA (earnings before interest, taxes, depreciation and amortisation) once such costs exceed $820,000 (100 million krónur) a year.
• Controlled foreign company rules: profits of a foreign company in a country taxing below roughly 13.3% are taxed in the hands of the Icelandic owner even if never distributed. More on our page about controlled foreign company notifications and reporting.
• Advance tax runs from February to September, 68% of the previous year's tax in total. The return is due by 31 May; an auditor or bookkeeper can file later - for 2025 the deadline was 21 September 2026.

The owner's salary from the tax authority's table

A self-employed person, or an owner who with family controls at least 50% of a company and personally holds at least 5%, must pay themselves reiknað endurgjald - an imputed salary no lower than Skatturinn's table, with all taxes and contributions.

Paying yourself dividends only does not work: if the salary you book is below the table, Skatturinn sets it for you. There are no special rates for small businesses. How to set up a company and a bank account is covered on our company registration page.

VAT in Iceland: 24%, 11% and a $17,000 threshold

In Iceland you must register for value added tax once turnover passes $17,000 (2,000,000 krónur) in any 12 months, which in practice means almost from your first big client.

The standard rate is 24%. The reduced 11% covers food, hotels, tours, books and newspapers, heating and hot water, bathhouses, geothermal lagoons and spas. Exports are zero-rated with input tax recovery; healthcare, education, financial services and property sales are exempt.

• The period is two months, with returns due one month and five days later - 5 April for January and February. Late payment costs 1% a day up to 10%.
• A foreign business with no presence appoints a local value added tax agent; sellers of electronic services only can register themselves.
• Accommodation tax is $10 (800 krónur) per night in hotels and $5 (400 krónur) at campsites.

Tax free for tourists. A non-resident reclaims part of the value added tax if a single receipt is at least $100 (12,000 krónur) and the goods leave Iceland within three months. The export stamp is given at Keflavík Airport: at the Change Group desk for refunds up to $820 (100,000 krónur), at customs above that. No stamp, no refund.

How Iceland taxes dividends, rent, property and inheritance

Labour in Iceland is taxed almost twice as heavily as capital: dividends, interest and capital gains pay a flat 22%, with no progression and no personal credit.

The big news for 2026 is for landlords. Until now half of long-term rental income was tax-free, for an effective rate of 11%; Act 103/2025 cut the exemption to 25%. The condition is strict: the lease must be registered with HMS, the state housing, construction and planning agency, or the whole amount is taxed.

The $2,500 (300,000 krónur) allowance is often misreported: the owner of a private ehf pays 22% from the first krona of dividends. Property tax is based on the official valuation that HMS revises every year, so the bill rises with the market. An inheritance handed over during the owner's lifetime is taxed at 10% of the full amount, with no threshold.

If you are buying property to let, we handle the shortlist and the checks: property in Iceland.

How to legally reduce taxes in Iceland

Iceland has nothing like a non-dom regime (tax only on money brought into the country) or a lump-sum tax (a fixed amount instead of income tax). The strongest legal lever is open only to employed specialists.

The 25% relief for foreign experts

Article 30 of Act 90/2003 exempts 25% of a foreign expert's salary from income tax for the first three years. Pension and social security are still calculated on the full amount. The conditions:

• you have not lived in Iceland for the 60 consecutive months before starting work (the first three months of your stay do not count);
• your salary is paid by a company registered in Iceland or a foreign company with a permanent establishment here;
• your expertise is scarce in Iceland, and the job involves research, development, teaching, specialised projects or key management;
• you or your employer apply through Rannís (the Icelandic Centre for Research) within three months of starting work.

Miss the three months and you lose the relief for all three years. On a salary of $7,400 (900,000 krónur) it saves about $700 (85,000 krónur) a month, roughly $8,200 (1 million krónur) a year.

What else works

• Voluntary pension savings of up to 4%: in the top bracket every krona paid in saves almost half its value in tax.
• Investing in young companies: in 2026, 75% of the investment is deductible. The company needs up to 25 employees, turnover or assets up to $5.4 million (650 million krónur), no listing and no more than seven years in business; investments from $2,500 (300,000 krónur) to $130,000 (15 million krónur) a year count, and the investor may hold up to 30%.
• Choosing your municipality: útsvar varies by up to 2.5 percentage points.
• A company instead of sole trading: 20% on profit versus a scale up to 46.29%, provided you pay yourself the imputed salary.
• A holding company: dividends and gains on shares inside an Icelandic company are not taxed until paid out to the owner.
• Timing: Iceland does not tax income earned before your residence starts. Close asset sales and bonuses before registering lögheimili, and when leaving, secure a residence certificate from your new country first.

Parking profits in low-tax jurisdictions is a bad idea: controlled foreign company rules and a ten-year window to reassess such income make it an expensive mistake.

Iceland vs Norway, Sweden, Denmark and Finland: where taxes are lower

On the top rate for salaries Iceland is one of the gentler Nordic countries: 46.29% against roughly 52% in Sweden and up to 60.5% in Denmark. On incentives for newcomers, however, it loses to every neighbour except Norway.

2026 rates according to the tax authorities of these countries. With a high salary and a five-to-seven-year contract, the Swedish and Danish regimes beat Iceland's, which lasts three years. For an entrepreneur Iceland looks better: 20% on profit undercuts the 22% in Norway and Denmark. For the wider picture, see our comparison of taxes in Europe and the overview of rates by country.

Worked examples: an employee, a foreign expert and a business owner

Three typical scenarios at 2026 rates show where Iceland is expensive and where it is bearable. The municipal rate is the 14.94% average.

An employee earning $7,400 (900,000 krónur) a month

The effective tax rate is 24.8% of gross pay. The employer adds $1,400 (161,550 krónur) of contributions on top. With the expert relief the base falls to $5,300 (639,000 krónur), the tax to $1,200 (137,886 krónur), and take-home pay rises to $6,000 (726,114 krónur).

An ehf owner with $250,000 (30 million krónur) of profit before their own salary

The state takes about 32.8% of the profit, another 5.8% goes to the owner's pension account, and about 61% reaches the owner's pocket. The key lever is whether to distribute profit at all: until dividends are paid, the 22% never arises.

When to file and how to get a tax refund in Iceland

Individuals file in mid-March (by 13 March in 2026), and Skatturinn has already filled in the return for you - but only with Icelandic data. Foreign accounts, dividends and salaries will not appear in it, and they are your responsibility.

• An accountant or auditor can file for a client later - by 15 April in 2026. The final assessment comes out at the end of May, refunds are paid on 1 June, and any shortfall is split into up to seven instalments deducted from salary.
• Objections go to Skatturinn within three months of the announcement that the assessment is complete (one month for companies), then to yfirskattanefnd (the State Internal Revenue Board) within three months.
• The authority can reassess returns for six years - two if the return was complete and correct, ten for income from low-tax countries.

How to get tax back. An employee's overpayment, for example an unused credit in the year of arrival, is refunded automatically after the May assessment. When you leave, file a return for the year of departure: the credit is calculated by days, and the overpayment goes to an Icelandic account. An expert whose relief is approved reclaims the tax withheld from day one (form RSK 5.17). A non-resident reclaims tax above the treaty rate on form RSK 5.43, and a tourist reclaims value added tax through tax free.

An ehf can skip the audit as long as for two years running it stays below two of three thresholds: assets of $1.7 million (200 million krónur), turnover of $3.3 million (400 million krónur) and 50 employees (Act No. 3/2006, Article 98). Our audit and reporting service helps with the thresholds and the books.

Double taxation: Iceland's treaties and the foreign tax credit

Iceland's treaties cut withholding on dividends, interest and royalties. The table shows the treaty rates for selected countries.

The convention with Russia of 26 November 1999 still formally exists, but since 8 August 2023 Russia has suspended its Articles 5-23 and 25, almost everything that allocates income and cuts rates, so double taxation between the two countries is relieved only under each country's domestic rules.

Where a treaty applies, foreign tax is credited against Icelandic tax, but never beyond the Icelandic tax on the same income. You must claim the credit in your return with proof of payment; without a treaty the credit is decided case by case, so settle the question before the income arrives.

Pitfalls: who Iceland's tax system does not suit

Iceland pays off for a narrow group: employed specialists with the relief, people living on capital income and owners of a profitable business run through an ehf. For everyone else a move will almost certainly raise their taxes.

• Freelancers and remote workers: a scale up to 46.29%, value added tax from $17,000 (2 million krónur) of turnover, and work done from Iceland is taxed here even with a foreign employer.
• Anyone hoping to pay themselves dividends only: the salary from Skatturinn's table is mandatory.
• Owners of structures in low-tax countries: controlled foreign company rules and ten years to reassess.
• People who leave and expect to stop paying at once: the tail lasts three years from the 1 January after departure.
• Households with one high earner: since 2026 brackets can no longer be shared.
• Recipients of income from countries without a working treaty: the credit for foreign tax is decided case by case.

If Iceland is still on your list, start with a calculation based on your own numbers and the order of the move: which income to receive before registering, where to keep accounts, how to close your current residence. Our relocation service helps with that, and the alternatives are in our guide to the best countries to relocate to.

Features of the Icelandic tax system

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