Value Added Tax (VAT)

Those who sell goods and services in Iceland must declare and pay VAT, 24% or 11%, which must be added to their price of the goods and services they are selling.

Registration for VAT

In general, all foreign as well as domestic companies and self-employed business owners selling taxable goods and services in Iceland needs to register their business for VAT. They are obliged to complete a registration form RSK 5.02 and submit it to the Directorate of Internal Revenue. Once they have registered they will be given a VAT registration number and a registration certificate. VOES (VAT on Electronic Services) is a simplified VAT registration that is available to certain foreign companies.

Exempt from the obligation to register for VAT are those who sell labor and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity (was 1.000.000 ISK before January 1st 2017). The registration duty does not apply to employees.

Foreign taxable persons

Certificate of registration

VOES (VAT on Electronic Services)

Scope and exemptions

Value Added Tax (VAT) is an indirect consumption tax levied on all stages of domestic business transactions, as well as on the imports of goods and services. The tax liability covers all goods and valuables, new and used, all labor and services, regardless of name, except those which are directly exempt from VAT.

Exemptions

 VAT rates

 Zero rated supplies

Input tax

General rules apply to the deduction of input tax, regardless of whether parties are domestic or foreign. The right to deductions for input tax applies to VAT on goods (both goods for supply and business assets) and services purchased for use in business activities which are liable to VAT. VAT that cannot be verified by a sales invoice is not deductible as input tax. It is also a precondition that the vendor has charged VAT on the goods or services that are purchased and is registered for VAT on the date of transaction.

It's possible to check online if the vendor is registered for VAT

The value added tax on purchases for the following may not be counted as input tax:

  • The cafeteria or dining room for the taxable person and all food purchases, except for resale.
  • The acquisition or operation of living quarters for the owner or staff.
  • Perquisites for the owner and staff.
  • The acquisition and operation of vacation homes, summer cottages, children's nurseries and similar objects for the owner and staff.
  • Entertainment costs and gifts.
  • The acquisition, operation and rental of passenger cars. The same shall apply to delivery and transport vehicles and off-road vehicles with a gross authorized weight of 5000 kg or less, which do not fulfill the requirements for capacity and length of cargo area set by the Minister of Finance and Economic Affairs.

VAT statement and payment obligations

Taxable persons are obliged to file an electronic statement and pay VAT after each settlement period. Information about the VAT statement and required information, settlement periods, due date, payment methods etc. can be found in this chapter.

VAT settlement period

Other VAT settlement periods

The VAT statement

Filing a VAT statement and paying VAT

Additional tax and penalties

Appeals

Miscellaneous

Foreign companies selling taxable goods and services in Iceland may also be liable for withholding tax of employees‘ wages and to keep accounts for their business in Iceland according to the Icelandic regulations.

Withholding tax/remuneration

Accounting and invoicing

VAT on electronic services (VOES)