Iceland: Taxes and Costs

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Rental Income taxes are relatively low in Iceland

INDIVIDUAL TAXATION

Non-resident individuals are taxed on their Icelandic-sourced income. They are allowed the same deductions and credits as residents. Married couples are taxed jointly on certain types of income, and taxed separately on others.

INCOME TAX

Non-residents are liable to tax on income from Icelandic sources. Income is taxed at the national and municipal level. A contribution for the construction fund for the elderly is also imposed on income.

Income is divided into three categories:

• Category A consists of wages, salaries, all employment-related income and benefits, old-age pensions,
• Category B includes income from a business and income from independent economic activities,
• Category C includes investment income of any description. The significance of the division lies in the treatment of deductions for each category.

Deductions that are expressly allowed by law may only be deducted from categories A and C, while operating losses may only be deducted from category B.

National Income Tax

The tax base for the national income tax varies for taxpayers who are engaged in a business and for those who are not. In both cases, deductions allowed for the categories are applied before the tax is levied.

• For taxpayers not engaged in a business, income from categories A and B are aggregated after the allowed deductions have been taken, and then taxed at a flat rate of 23.75%. Income from category C is taxed separately by assessment at a rate of 10%.
• For taxpayers engaged in a business, income from all categories are pooled together, after their respective allowed expenses were deducted, and then taxed at the flat income tax rate of 23.75%.

Rental Income

Rental income is classified as investment income, under category C and taxed by way of assessment at a flat rate of 10% for non-residents. Expenses incurred in generating rental income are not deductible.

Municipal Income Tax

Municipalities in Iceland also levy their own taxes on income. The rate varies according to the municipality. The average rate is 12.97%.

The taxable base is also different for those who are engaged in a business and those who are not. For individuals who are not engaged in a business, the tax base is the aggregate of income from categories A and B. For individuals engaged in a business, the tax base is the aggregate of income from all categories.

Income from category C of non-residents, however, is not subject to municipal income tax.

Construction Fund for the Elderly

Individuals between 16 and 69 years old who are subject to national income tax and whose income is at least ISK948,647 (€10,854) are required to pay a lump-sum contribution to the construction fund for the elderly. The contribution is ISK6,314 (€72).

CAPITAL GAINS TAX

Gains from the sale of real estate property are taxable. Capital gains are generally computed as selling price less depreciated book value. The taxation of the gain depends on whether the gain will be classified under category B or C.

If the property that was sold was business property, then the gains will be classified under category B and taxed as ordinary income at 23.75%.

If the gains come from private real estate property, then the gains are classified under category C, and taxed as investment income at 10%.

CORPORATE TAXATION

INCOME TAX

Corporate income in Iceland is taxed at a flat rate of 18%. Expenses incurred in acquiring and maintaining income are all deductible.

Capital Gains

Capital gains derived from the sale of real estate property are taxed as ordinary corporate income at 18%. The taxable gain is computed as selling price less its depreciated book value.

PROPERTY TAXATION

Real Estate Tax

Real estate taxes are levied at the municipal level. The tax is imposed on the officially assessed value of the property, at rates that vary depending on which municipality the property is located.

Iceland - more data and information

• Guide to buying houses and registering property sales in Iceland

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