Iceland: Business Environment

Company Tax

20% for LLCs and limited partnership companies
37.6% for other types of legal entities (partnerships registered as taxable entities)

Tax Rate For Foreign Companies

Resident entities pay tax on their worldwide income, whereas non-resident companies are taxed only on their Icelandic income, at the same rates as national companies.
branches are taxable in accordance with their parent company: if the parent company is an LLC, the branch is subject to a CIT rate of 20%; otherwise, it is subject to tax at 37.6%.

Capital Gains Taxation

Capital gains are taxed as part of the general corporate income at 20%.
Gains derived by a corporation from the sale of shares are not subject to taxation.

Main Allowable Deductions and Tax Credits

Expenses necessary to provide, insure, and maintain income are generally deductible.
Depreciation of movable and immovable property is deductible at rates varying between 1% and 35%. Goodwill can be deducted at 10% or 20% per year.
Start-up expenses are generally deductible in full in their year of occurrence or over five years.
Interest expenses and bad debts (up to 5%) are generally deductible. Dividends received are deductible from business income.
Payment to obligatory pension funds are deductible up to 11.5%. Donations are deductible up to 1.5% of total income.
Fines and taxes are not deductible.
Net operating losses can be carried forward up to ten years. Carryback of losses is not permitted.

Other Corporate Taxes

Property tax is levied at rates set at the municipal level.
Stamp duty is usually levied at 1.6% on transactions regarding the transfer of real estate or ship ownership (0.8% for individuals).
Financial activity tax is levied at a rate of 5.5% on all remuneration paid to employees (6% on a tax base exceeding ISK 1 billion). Furthermore, financial institutions with debts exceeding ISK 50 billion are subject to a 0.145% tax.
A lodging tax is payable on accommodation that is subject to VAT at a flat fee of ISK 300 for each sold night (following the COVID-19 pandemic, the tax has been abolished for the period 1 April 2020 to 31 December 2023).
Social security contributions payable by the employer amount to 6.35% of the gross salary. Employer contributions to mandatory pension funds amount to 11.5%. Employers are liable for an additional 2% contribution if the employer opts for a private pension fund. Moreover, employers must pay 0.1% of all salaries to the Icelandic Rehabilitation Fund.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

Payments to pension funds are deductible up to 4% of total employment income. All individuals are entitled to a tax credit against state and municipal income taxes (ISK 669,993 for income year 2022). For married or cohabiting couples, the credit not used by one of the spouse is added to the credit of the other spouse.
Losses on the sale of private property can be offset against gains made on the sale of a similar property in the same year.
Married or cohabiting couples are liable for child benefits, with rates being increased for single parents. Benefits are reduced for couples whose annual income exceeds ISK 7.2 million and for single parents earning more than ISK 3.6 million.
Individuals who buy a residence for their personal use and bear interest expenses are entitled to recompense by the State Treasury (varying depending on the taxpayer's income and net wealth).
Deductions are available for car costs (between ISK 72 and ISK 120 per km, conditions apply).

Special Expatriate Tax Regime

Resident individuals are taxed on worldwide income; whereas non-residents are taxed only on income sourced in Iceland.
Icelandic-source income in the form of remuneration to non-resident directors and committee members, grants, or remuneration for independent personal services and art performances is taxed by assessment at a rate of 20% plus the average municipal income tax rate (14.45% in 2022).
Foreign experts qualifying for tax relief are taxed only on 75% of their income in their first three years of employment in Iceland. Click here for more info.