Is Tax Overview

---
name: is-tax-overview
description: "A one-page map of the Icelandic tax system for tax year 2026, from the Income Tax Act 90/2003, the VAT Act 50/1988 and Acts 4/1995, 113/1990 and 129/1997 as consolidated on althingi.is (text 158a), Advertisement 1521/2025 and Skatturinn's 2026 pages and filing notices. Covers the income year, the authority, who is taxed on worldwide income, the 2026 withholding bands (31.49% / 37.99% / 46.29%), the personal credit, the 22% capital income tax, company tax at 20% and 37.6%, the 6.35% payroll levy, the 15.5% minimum pension contribution, VAT at 24% and 11% with the ISK 2,000,000 registration limit, and the main 2026 deadlines (company returns 31 May, professional extension to 21 September). Use for 'how does tax work in Iceland', 'Iceland tax overview', 'Iceland tax rates 2026'. It points to the pack's domain skills for the detail: iceland-income-tax, is-corporate-income-tax, iceland-vat, iceland-payroll, iceland-social-contributions, is-cross-border, is-transfer-pricing, is-company-forma"
license: "AGPL-3.0-or-later (code) / OpenAccountants Guide License v1.0 (content)"
metadata:
  source: openaccountants
  openaccountants_url: "https://www.openaccountants.com/skills/is-tax-overview"
  jurisdiction: "IS"
  tax_year: "2026"
  last_updated: "2026-10-30"
---

# Iceland Tax Overview

## Iceland Tax Overview v0.2

This is a map, not a computation skill. Each line gives the 2026 headline figure and its source, and names the skill in this pack that carries the full rules. Where a domain skill and this overview ever differ, the domain skill wins.

## Iceland tax system at a glance (2026)

Iceland taxes individuals on earned income at progressive rates (state income tax plus municipal tax, collected together), taxes capital income at a flat rate, taxes companies at a flat rate, and charges value added tax (virðisaukaskattur, VSK). The tax authority is Skatturinn (Iceland Revenue and Customs). The ordinary income year is the calendar year.

- **Income year.** Tax is based on the income of the calendar year before the assessment, so the 2026 return reports 2025 income and 2026 income is assessed in 2027. Skatturinn can allow a different accounting year where that is normal in the trade or the taxpayer shows it keeps one _(Income Tax Act 90/2003, Article 59)_. Detail: `is-corporate-income-tax`.
- **Currency.** Icelandic króna (ISK). The tax acts and the 2026 advertisement state every amount in krónur _(Advertisement 1521/2025)_.
- **Tax authority.** Skatturinn (Iceland Revenue and Customs) assesses and collects income tax, VAT and the payroll levy. Companies are registered in its company register (fyrirtækjaskrá) _(Skatturinn, private limited companies page; [skatturinn.is](https://www.skatturinn.is/english/))_.
- **Who pays on worldwide income.** People domiciled in Iceland, and resident companies, pay income tax on all their income wherever it is earned _(Income Tax Act, Articles 1 and 2)_. A person who stays in Iceland for more than 183 days in total in any 12-month period, counting normal absence for holidays, is taxed the same way _(Article 1(1)(3))_. Others are taxed only on the Icelandic income listed in Article 3, such as pay for work done in Iceland _(Article 3)_. Detail: `is-cross-border`.
- **Personal income tax, 2026 withholding bands.** Combined state and average municipal rates: 31.49% on monthly income up to ISK 498,122; 37.99% from ISK 498,123 to ISK 1,398,450; 46.29% above ISK 1,398,450 _(Advertisement 1521/2025; Skatturinn, key figures 2026)_. Detail: `iceland-income-tax`.
- **Personal income tax, 2026 annual bands.** State rates of 16.55% up to ISK 5,977,470, 23.05% from ISK 5,977,471 to ISK 16,781,397, and 31.35% above that. The average municipal rate is 14.94% _(Advertisement 1521/2025)_. Each municipality sets its own rate between 12.44% and 14.97% _(Act 4/1995 on Municipal Revenue, Article 23)_, so the final bill uses the rate of the municipality of domicile. Detail: `iceland-income-tax`.
- **Personal tax credit (persónuafsláttur).** ISK 869,898 for 2026, which is ISK 72,492 a month on average _(Advertisement 1521/2025; Income Tax Act, Article 67)_. Detail: `iceland-income-tax`.
- **Children.** Children born in 2011 or later pay 6% on income above ISK 300,000 a year _(Skatturinn, key figures 2026)_. Detail: `iceland-income-tax`.
- **Capital income tax (fjármagnstekjuskattur).** 22% on an individual's capital income: interest, dividends, capital gains and rent. An allowance of ISK 300,000 a person (ISK 600,000 for a married couple) covers interest, and dividends and gains on shares that meet the conditions _(Skatturinn, key figures 2026; Skatturinn, capital income tax)_. Detail: `iceland-income-tax`.
- **Corporate income tax.** 20% for limited companies (hf., ehf.) and the other entities in Article 2(1)(1) and (2). 37.6% for other taxable entities, such as partnerships registered as separate taxpayers and estates _(Income Tax Act, Article 71(1) and (2); Skatturinn, key figures 2026)_. Detail: `is-corporate-income-tax`.
- **Payroll levy (tryggingagjald).** 6.35% in 2026: the general levy of 4.90% and the employment-insurance levy of 1.35% _(Act 113/1990, Article 2)_, plus the wage-guarantee fee of 0.05% and the market fee of 0.05%, which Skatturinn collects with the levy _(Skatturinn, payroll levy page; Skatturinn, key figures 2026)_. Detail: `iceland-social-contributions`, `iceland-payroll`.
- **Pension contributions.** The minimum contribution to a pension fund is 15.5% of the contribution base _(Act 129/1997, Article 2)_. Skatturinn's employer return calculates 11.5% from the employer against 4% from the employee _(Skatturinn, employer notice 1/2026)_. Detail: `iceland-payroll`.
- **Withholding (staðgreiðsla) due dates.** Withholding for a wage month falls due on the 1st of the next month; the final due date is the 15th _(Skatturinn, employer register)_. Detail: `iceland-payroll`.
- **VAT (virðisaukaskattur).** Standard rate 24%; reduced rate 11% on the supplies the Act lists, such as food, hotel rooms, books and passenger transport _(VAT Act 50/1988, Article 14; Skatturinn, key figures 2026)_. Detail: `iceland-vat`.
- **VAT registration limit.** A business selling taxable goods or services of ISK 2,000,000 or less in each 12-month period from the start of its activity does not have to register _(VAT Act, Article 4)_. Detail: `iceland-vat`.
- **VAT periods and due date.** Two-month periods (January and February, March and April, and so on) _(VAT Act, Article 24)_. Return and payment are due on the 5th day of the second month after the period ends, which is one month and five days, moving to the next working day after a weekend or holiday _(Skatturinn, VAT general page and guide to VAT registration)_. A business with taxable sales under ISK 4,000,000 in a whole calendar year can ask to settle once a year _(VAT Act, Article 24; Skatturinn, VAT general page)_. Detail: `iceland-vat`.
- **Individual returns.** The 2026 return (2025 income) was due on 13 March 2026 _(Skatturinn, filing a tax return)_. Detail: `iceland-income-tax`.
- **Company returns.** For the 2026 return (2025 income) the general deadline was 31 May 2026. Professional preparers (auditors and bookkeepers) could get an extension up to 21 September 2026. The extension is not automatic _(Skatturinn, notice of 30 January 2026; Income Tax Act, Article 93)_. Detail: `is-corporate-income-tax`.
- **Annual accounts.** Companies file annual accounts with the Register of Annual Accounts no later than one month after approval, and no later than eight months after the year end _(Annual Accounts Act 3/2006, Article 109)_. Detail: `is-company-formation`.
- **Late returns.** Where no return is filed on time, Skatturinn estimates the tax bases and may add a surcharge of up to 15% to them _(Income Tax Act, Article 108)_. Detail: `iceland-income-tax`.
- **Transfer pricing.** Prices between related parties must match what unrelated parties would agree. A legal entity whose operating revenue or total assets pass ISK 1 billion must document its transactions with related legal entities from the next financial year _(Income Tax Act, Article 57)_. Detail: `is-transfer-pricing`.

## Which skill to use

| Question | Skill |
|---|---|
| An individual's return, bands, credit, capital income, sole traders | `iceland-income-tax` |
| Company tax at 20% or 37.6%, losses, depreciation, filing and payment | `is-corporate-income-tax` |
| VAT returns, rates, registration, VOES | `iceland-vat` |
| Payroll levy and pension contributions | `iceland-social-contributions` |
| Gross to net, withholding, benefits in kind | `iceland-payroll` |
| Residence, non-residents, withholding on payments abroad, treaties | `is-cross-border` |
| Related-party prices and documentation | `is-transfer-pricing` |
| ehf., hf., partnership or sole trade: forming and running one | `is-company-formation` |
| Lawful ways to lower the tax bill | `iceland-tax-optimization` |

## Sources

| Source | URL | Read on |
|---|---|---|
| Income Tax Act 90/2003 (lög um tekjuskatt), consolidated text 158a of 1 October 2026, Articles 1, 2, 3, 57, 59, 67, 71, 93, 108 | https://www.althingi.is/lagas/nuna/2003090.html | 2026-10-30 |
| VAT Act 50/1988 (lög um virðisaukaskatt), consolidated text 158a, Articles 4, 14, 24 | https://www.althingi.is/lagas/nuna/1988050.html | 2026-10-30 |
| Act 4/1995 on Municipal Revenue, consolidated text 158a, Article 23 | https://www.althingi.is/lagas/nuna/1995004.html | 2026-10-30 |
| Act 113/1990 on the Payroll Levy (tryggingagjald), consolidated text 158a, Article 2 | https://www.althingi.is/lagas/nuna/1990113.html | 2026-10-30 |
| Act 129/1997 on Pension Funds, consolidated text 158a, Article 2 | https://www.althingi.is/lagas/nuna/1997129.html | 2026-10-30 |
| Annual Accounts Act 3/2006, consolidated text 158a, Article 109 | https://www.althingi.is/lagas/nuna/2006003.html | 2026-10-30 |
| Advertisement 1521/2025 on 2026 tax bands, withholding rates and personal credit (Stjórnartíðindi B) | https://island.is/stjornartidindi/nr/34903c0c-a215-46e9-878c-b1ecff73af7d | 2026-10-30 |
| Skatturinn, key figures and rates 2026 (helstu tölur 2026) | https://www.skatturinn.is/einstaklingar/helstutolur/2026/ | 2026-10-30 |
| Skatturinn, capital income tax | https://www.skatturinn.is/einstaklingar/skattar-og-gjold/fjarmagnstekjuskattur/ | 2026-10-30 |
| Skatturinn, notice of 30 January 2026: legal-entity returns 2026, deadline 31 May, extension to 21 September | https://www.skatturinn.is/um-rsk/frettir-og-tilkynningar/opnad-fyrir-skil-a-skattframtali-logadila-2026 | 2026-10-30 |
| Skatturinn, filing a tax return (individuals, 2026 deadline 13 March) | https://www.skatturinn.is/english/individuals/filing-a-tax-return/ | 2026-10-30 |
| Skatturinn, payroll levy (tryggingagjald): 2026 components 4.90% + 1.35% + 0.05% + 0.05% | https://www.skatturinn.is/atvinnurekstur/skattar-og-gjold/tryggingagjald | 2026-10-30 |
| Skatturinn, employer register (withholding due 1st, final due 15th) | https://www.skatturinn.is/atvinnurekstur/ad-hefja-rekstur/launagreidendaskra/ | 2026-10-30 |
| Skatturinn, employer notice 1/2026 (RSK 06.01) | https://www.skatturinn.is/media/2026/rsk_0601_1_2026.is.pdf | 2026-10-30 |
| Skatturinn, VAT general page (periods, due date, annual settlement) | https://www.skatturinn.is/atvinnurekstur/ad-hefja-rekstur/almennt-um-vsk/ | 2026-10-30 |
| Skatturinn, guide to VAT registration (due date one month and five days) | https://www.skatturinn.is/media/baeklingar/VSK_Skraning_a_vsk_skra.pdf | 2026-10-30 |
| Skatturinn, private limited companies (company register) | https://www.skatturinn.is/fyrirtaekjaskra/stofnun-felaga/einkahlutafelog/ | 2026-10-30 |

Not yet confirmed: the 2027 filing deadlines for 2026 income (Skatturinn has not yet published them); the 2026 reduced payroll-levy rate for workers with an A1 certificate (Skatturinn's levy page gives rates up to wage year 2025 only; see `iceland-social-contributions`).

## Today's figures and who stands behind this skill

This file is an AI skill (tax rules your AI follows) from OpenAccountants, copied on 2026-10-30. Rates, thresholds and deadlines change. For the current version of this skill, its official sources and the named accountant (if any) who stands behind it, call `get_skill` with slug `is-tax-overview` on the OpenAccountants connector (https://www.openaccountants.com/connect), or read https://www.openaccountants.com/skills/is-tax-overview. If neither is available, confirm every figure against the official source pages cited above before relying on it.