Property-Related Taxes in Iceland
Effective Tax Rate on Rental Income |
|||
| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 16.50% | 16.50% | 16.50% |
Non-resident individuals are generally subject to Icelandic taxation on income derived from Icelandic sources, including rental income and taxable gains arising from real estate situated in Iceland.
Rental Income Tax
Rental income from residential property may be treated as capital income where an individual rents out no more than two residential properties that fall within Iceland's residential rental legislation.
For 2026, 25% of qualifying gross rental income is tax-exempt, while the remaining 75% is subject to capital income tax at 22%. Under this treatment, expenses cannot be deducted separately.
This produces an effective tax burden of approximately:
75% × 22% = 16.5% of gross rental income.
The previous rule under which 50% of qualifying rental income was exempt applied in earlier years and should therefore not be used for 2026 calculations.
Where the rental activity does not satisfy the conditions for this preferential treatment, different tax treatment may apply.
Capital Gains Tax
Capital gains realized by individuals from the disposal of Icelandic real estate are generally subject to capital income tax at 22%. The taxable gain is broadly determined as the difference between the property's sale proceeds and its relevant tax basis, subject to the applicable tax rules.
An important exemption applies to qualifying residential property. Gains from the sale of a private residence may be exempt from capital gains tax where the property has been owned for at least two years, subject to statutory conditions concerning the nature and size of the property.
The two-year ownership period should therefore not be interpreted as providing an automatic exemption for every investment property. The exemption is specifically relevant to qualifying residential property and is subject to additional requirements.
Corporate Tax
Icelandic limited liability companies are generally subject to corporate income tax at a rate of 20% on their taxable profits.
Other legal entities subject to unlimited liability, including certain partnerships, are generally taxed at a higher rate of 37.6%.
Resident companies are generally taxable on their worldwide income, while non-resident companies are subject to Icelandic taxation on qualifying Icelandic-source income and income attributable to an Icelandic permanent establishment.
Rental income earned by a company from Icelandic real estate is generally included in its taxable business income. Qualifying operating expenses incurred in generating, maintaining and securing taxable income are generally deductible when determining the company's taxable profit.
Capital gains arising from the disposal of real estate by a company are generally included in taxable corporate income and subject to the applicable corporate income tax rate.
Property Buying Costs and Taxes in Iceland
| Transaction Costs | ||
| Who Pays? | ||
| Transfer tax (Real Estate Appraisal Fee) | 0.80% - 1.60% | buyer |
| Notary fees | 0.10% | buyer |
| Legal fees | 0.00% - 1.00% | buyer |
| Real Estate Agent Fee |
1.50% - 2.50% |
seller |
| Total costs paid by the buyer: | 0.90% - 2.70% | |
| Total costs paid by the seller: | 1.50% - 2.50% | |
| ROUNDTRIP TRANSACTION COSTS | 2.40% - 5.20% | |
| Source: Global Property Guide, PWC | ||
Property Tax
Real estate in Iceland is subject to an annual municipal property tax calculated on the property's officially assessed value. The applicable rate is determined by the municipality and varies according to the property's classification and use.
For a typical residential investment property in Reykjavík, the annual property tax is therefore approximately 0.18% of the assessed property value. For example, a residential property with an assessed value equivalent to €500,000 would generate approximately €900 per year in property tax, while a property assessed at €1 million would generate approximately €1,800 per year, assuming the same rate.
