Allowances, deductions and credits

Deductions for expenses

Payments to pension funds for private pension insurances are deductible up to 8% of total employment income and presumptive employment income. Otherwise, no significant deductions are allowed from employment income.

Personal tax credits

All individual taxpayers are entitled to a personal tax credit against the computed state and municipal income taxes on income. 

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Child benefits

See Child benefit

Private housing interest subsidy

Individuals, who buy a residence for their personal use and bear interest expenses, are entitled to recompense by the State Treasury. The amount of interest compensation is based on the interest for loans obtained for the purpose of financing a building or for purchase of a residence. The benefits are linked to income and net wealth. Limitations apply to the amount of interest on the basis of which the compensation may be calculated, and also to the amount of the interest compensation itself.


Losses on the sale of private (non-business) property are generally not deductible; however, they may be deducted from gains made on the sale of similar property in the same year.

Operating losses may only be deducted from business income. The net operating loss may be carried forward for 10 years. Carry-back is not allowed.


For the income year 2024 the rate of income and municipal tax is calculated in three brackets:
ISK 0 - 446,136 pr. month31.48%
ISK 446,137 - 1,252,501 pr. month
Income exceeding ISK 1,252,501 pr. month

Income of capital gains derived by individuals which are not engaged in business activities is taxed separately at a rate of 22%. In the case of dividends and interest, the tax is withheld at source. Income taxed this way must be reported on the tax return. In the case of capital gains from the sale of immovable property and shares, as well as rental income from private immovable and movable property, the tax is levied by way of assessment for residents but for non-residents the tax is withheld at source.