Business Environment

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In this page: Accounting Rules | Tax Rates | Intellectual Property | Legal Framework | Standards | Business Practices

 

Accounting Rules

Tax Year
The fiscal year begins on 1 January and ends on 31 December of the same year.
Accounting Standards
As a European Economic Area (EEA) member, Iceland applies the European IAS/IFRS regulations.
Accounting Regulation Bodies
Icelandic Ministry of Finance.
Accounting Reports
The annual report must contain a profit and loss account, a balance sheet and an annual report.
Publication Requirements
The Law refers to the notion of "good accounting method" as regards the methods of companies for the elaboration of financial statements.
All capital companies have to send a copy of their annual report to the legal authorities of the country. This annual report must contain a profit and loss account, a balance sheet and an annual report.
The report must be in Icelandic, Danish or English. However, companies registered in Iceland, whose income mainly comes from foreign sources, can present a report in a foreign currency and language.
Professional Accountancy Bodies
The Institute of State Authorized Public Accountants in Iceland
Certification and Auditing
Every limited company in Iceland is required to elect an auditor or inspector and have its annual accounts audited. For public limited companies, a state-authorized public accountant must perform a full-scale audit. Publicly listed companies must elect two auditors, one of whom must be a state-authorized public accountant.
You can contact an external auditor: Ernst & Young, Deloitte, KPMG and PricewaterhouseCoopers.
Accounting News

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Tax Rates

Consumption Taxes

Nature of the Tax
Virðisaukaskattur abbreviated to VSK (VAT)
Tax Rate
24% for most products and some services.
Reduced Tax Rate
A reduced rate of 11% applies to radio and television; rental of hotel rooms, guest rooms and other accommodation; sale, including subscription, of newspapers, periodicals, countryside and district newspapers and books, both hard copies and electronic copies; access to road facilities; geothermal hot water, electricity and fuel oil used for heating; most food-related items (including alcoholic beverages); CDs, records, magnetic tapes and other similar means of music recordings, other than visual records; condoms; reusable diapers and diaper lining; the services of travel agents; transportation of passengers, whether by land, air or sea, including coaches and bus trips; admission to spas, saunas, etc.

Zero-rated items include export of goods and services; supplies delivered for use on board vessels on international journeys; sale and leasing of aircraft and ships, shipbuilding along with repair and maintenance work on ships and aircraft and their fixed equipment; the design, planning and other comparable services related to construction and other real property abroad; contractual payments from the Treasury related to the production of milk and sheep farming; sales of services to foreign fishing vessels landing fish in Iceland; sales of services to persons neither domiciled nor having a venue of operation in Iceland, provided that the services are wholly used abroad; transportation of goods between countries or within the country when the transport takes place to or from Iceland.

Exempt items include financial services; insurance; lease of residential property; medical services; social services; educational services; real estate transactions; specified cultural and sporting events; public transport; postal services; lotteries and betting pools; funeral services.
Other Consumption Taxes
Excise duties are levied on fuel, sale of electricity and hot water (an exemption applies to sales below ISK 500,000 per year). A carbohydrate tax is levied per litre or kg on gas and diesel oil, petrol, fuel oil and petroleum gas.
A special tax is collected from entities selling electricity and/or hot water to final users. A National Broadcasting Fee of ISK 18,800 per year is levied on all taxable individuals aged 16 to 70.

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Corporate Taxes

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.
 

Country Comparison For Corporate Taxation

  Iceland OECD United States Germany
Number of Payments of Taxes per Year 21.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 140.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 31.9 41.6 36.6 48.8

Source: Doing Business - Latest available data.

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Individual Taxes

Tax Rate

Income Tax Progressive rates (2022)
ISK 4,445,783 per year 17% + 14.45% municipal tax = 31.45%
From ISK 4,445,783 to ISK 12,481,275 23.5% + 14.45% municipal tax = 37.95%
Income exceeding ISK 12,481,275 31.8% + 14.45% municipal tax = 46.25%
Municipal income tax Between 12.44% and 14.52% in the final assessment (14.45% is withheld at source)
Capital income 22%
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.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the conventions signed
Withholding Taxes
Dividends: 0% (paid to a company of the EEA)/20% (companies)/22% (individuals); Interest: 20% (resident company)/22% (resident individual)/12% (paid to a non-resident)/0% (paid to non-residents on Icelandic
bonds registered on a securities exchange within the EEA); Royalties: 20% (resident company)/22%.

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Intellectual Property

National Organisations
The organization in charge of the protection of intellectual property in Iceland is the Patent Office of Iceland (Einkaleyfastofan) Iceland signed the Paris Agreement regarding the protection of industrial property and the agreement which established the World Intellectual property Organization (WIPO). As for patents, the country adheres to the Munich Agreement for European patents, as well as to the Patent Cooperation Treaty (PCT). Iceland did not sign the Madrid Agreement concerning the international register of trademarks but adhered to the 1989 protocol , which came into force in Iceland on January 1st, 1997.
 

National Regulation and International Agreements

 
Type of property and law Validity International Agreements Signed
Patent
 
Patent Law 1996
20 years Patent Cooperation Treaty (PCT)
Trademark
 
Trademarks Act 1997
5 years, renewable Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks
Design
 
Design Protection Act 1996
5 years, renewable up to 25 years  
Copyright
 
Copyright
For the author's lifetime and up to 50 years after his death Berne convention For the Protection of Literary and Artistic Works
Rome ConventionFor the Protection of Performers, Producers of Phonograms and Broadcasting Organizations
WIPO Copyright Treaty
WIPO Performances and Phonograms Treaty
Industrial Models
 
Design Protection Act
5 years, renewable up to 25 years  

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Legal Framework

Independence of Justice
The country’s judiciary is independent. 
Equal Treatment of Nationals and Foreigners
The country’s judicial system guarantees equal treatment to foreign nationals.
The Language of Justice
 Icelandic is the judicial language used in Iceland.
Sources of the Law and Legal Similarities
 The main source of the law is the constitution of 1944 which has been amended many times. The legal system is based on a civil law system originating in Danish law. Iceland has not accepted compulsory ICJ jurisdiction. 

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Standards

National Standards Organisations
IST, Icelandic Standards
Integration in the International Standards Network
The organization responsible for norms and certificates of compliance is Icelandic Standards (Stadlarad). IST is a member of the European Committee for Standardization (CEN), the European Committee for Electrotechnical Standardization (CENELEC), the European Telecommunications Standards Institute (ETSI), the International Organization for Standardization (ISO), and of the International Electrotechnical Commission (IEC).
Classification of Standards
The Icelandic standards are the IST. Iceland observes the classification of international standards of the International Organization for Standardization (ISO).
Online Consultation of Standards
To look up standards on line, visit the website of Icelandic Standards or the website of ISO.
Certification Organisations
Icelandic Standards: organization for certification and standardization

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Business Practices

General Information
Kwintessential, how to behave when doing business in Iceland
Opening Hours and Days
Banks open Monday to Friday from 9.15 am to 4 pm; Lansbanki's branch, in Keflavik airport, is open every day from 6.30 am to 6.30 pm.
Shops are open Monday to Friday from 9 am to 6 pm, and on Saturday from 10 am to 4 pm.
Supermarkets open every day from 10 am to 10 pm.
Public Administrations are open Monday to Friday from 9 am to 4 pm.
 

Public Holidays

New Year's Day 1 January
Maundy Thursday 9 April
Good Friday 10 April
Easter Monday 13 April
Earth Day 22 April
1st Day of Summer 24 April
Ascension May
Labor Day 1 May
Whit Monday May
National Day 17 June
Christmas Eve (1/2 day) 24 December
Christmas Day 25 December
Saint Stephen 26 December
New Year's Eve (1/2 day) 31 December
 
 

Periods When Companies Usually Close

Christmas holidays Beginning of January
Spring holidays Mid March
Summer holidays June, July and August
Autumn holidays November
 

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Latest Update: July 2022