Posted workers

Following information is regarding the employees of temporary-work agencies (hiring-out of labour) and employees of foreign service providers (foreign undertakings).

A foreign service provider is a foreign business operation that provides services in Iceland carried out by its employees.

Temporary-work agency is a service company which hires out its workers to perform work assignments at the workplace of a user company under the supervision of the latter.

The Directorate of labour has a web-page where you can access information regarding rules on working condition, health and safety and posting.

Employee tax liability

Employees of a foreign service provider:

Posted workers of a foreign service provider may be liable to pay tax on income in Iceland.

If the foreign service provider has an exemption from tax on the basis of a Double Taxation Convention, employees of the service provider are exempt as well if their stay does not exceed 183 in each 12 month period. Included are brief sojourn abroad on account of holidays etc. If the stay exceeds 183 days they have an unlimited tax liability and are liable to pay tax on total income earned in Iceland from arrival.

If a foreign service provider carries on business in Iceland through a permanent establishment, their employees are liable to pay tax in Iceland regardless of duration of their stay. Their tax liability may be limited or full and unlimited.

Employees of a foreign temporary-work agency:

Employees of a foreign temporary-work agency working in Iceland are liable to pay income tax on their salary. The tax liability of persons dwelling for 183 days or less in Iceland in every 12 month period is limited, i.e. they are liable to pay income tax on income arising in Iceland. Included are brief sojourn abroad on account of holidays etc. Persons dwelling more than a total of 183 days in every 12 month period have a full and unlimited tax liability in Iceland which means they are liable to pay tax on all income, regardless of where it was earned, in Iceland or abroad.

Additional information on limited tax liability

How taxes are calculated

Personal tax credit is deducted from calculated taxes. Persons dwelling temporarily in Iceland for work are entitled to personal tax credit for each day they dwell in Iceland.

Additional information on personal tax credit

Employee checklist

If you are a foreign worker liable to pay tax in Iceland, the following information applies to you.

Before work begins you need to...

When leaving Iceland after working temporarily in Iceland you need to...

  • ...file a tax-return. It‘s optimal to file RSK 1.13 before departure. Alternatively it is possible to turn in the tax return electronically on the Internal Revenue‘s service page. The tax return for individuals is due in March each year.

Additional information

Rules and regulations

Tax liability (limited - individuals) - Income Tax Act No. 90/2003, Art. 3

Tax liability (unlimited – individuals) – Income Tax Act No. 90/2003, Art. 1.

Withholding tax (employee of a temporary work agency) – Article 7, para. 3.-4. Act. No. 45/1987 on the Withholding of Public Levies at Source

Exemption from taxes in Iceland  - Double Taxation Agreement, Art. 14 or 15

Forms

Simplified tax return for individuals - RSK 1.13

Other

Electronic ID - Auðkenni and skilriki.is

Information on working conditions, health and safety and posting

Sign in page to personal accounts at The Internal Revenue

The National Registry (Þjóðskrá)