You cannot reclaim VAT on personal purchases as a resident. VAT is already included in the sticker price at shops, so the amount you see is the amount you pay. For a broader picture of what things cost, see our cost of living guide.
Other fees and levies
Beyond income tax, there are other taxes in Iceland that appear on your annual assessment:
National Broadcasting Service fee (útvarpsgjald). All taxpayers with annual income above 2,617,618 ISK pay 22,200 ISK per year (as of the 2026 assessment). This funds RÚV, Iceland's public broadcaster.
Senior Citizen's Construction Fund (framkvæmdasjóður aldraðra). Taxpayers aged 16 to 69 with income above the same threshold pay 14,614 ISK per year (as of the 2026 assessment).
Neither fee is large, but they will show up on your annual tax assessment. Both are collected automatically based on your tax return.
Employers also pay a separate payroll tax of 6.35% on top of your salary to fund social insurance. This does not come out of your wages, but it is part of the total cost of employing someone in Iceland.
The foreign expert tax discount
Iceland offers a significant tax incentive for qualified foreign specialists. Under rules in effect since January 2017, eligible foreign experts pay income tax on only 75% of their salary for their first three years of employment. The remaining 25% is exempt.
To qualify, you must meet all of the following conditions (per Skatturinn and Rannís):
You have not been domiciled in Iceland for the 60 consecutive months before starting work (the first three months of your stay do not count).
You are hired by a legal entity domiciled in Iceland.
Your role requires specialized expertise that is limited or unavailable in Iceland.
Your work relates to research, development, innovation, teaching, or a similar field, or you work in management or project management on projects that are core to your employer's business.
You must apply through the Icelandic Centre for Research (Rannís) within three months of starting employment. A special committee evaluates each application. If approved, you need to apply to Skatturinn (using form RSK 5.17) to correct the tax already withheld from your start date. The correction is not automatic.
This discount can be substantial. At a monthly salary of 800,000 ISK, the 25% exemption saves roughly 60,000 to 75,000 ISK per month in taxes depending on your bracket. It is worth checking eligibility as soon as you have a job offer.
Filing your tax return
The tax year in Iceland is the calendar year (January to December). Each March, Skatturinn opens the online tax return for the previous income year. The deadline is typically mid-March (it was March 13 for the 2026 return covering income year 2025).
The good news: most of your return is pre-filled. Salary, real estate, vehicles, bank accounts, and debt data are pulled in automatically. You log in at skattur.is using an Icelandic electronic ID (rafræn skilríki), review the numbers, add any missing information, and confirm. For most employees with a single income source, the process takes minutes.
If you plan to stay in Iceland less than three years, you can file a simplified tax return on paper. Skatturinn publishes this form in English.
What happens after filing. The final tax assessment is issued at the end of May. If you overpaid during the year, you receive a refund (plus 2.5% interest). If you underpaid, the outstanding amount is increased by 2.5% and collected in seven monthly installments through your employer's payroll.
Even if you leave Iceland before March, you are still required to file a return for any year you had Icelandic income. Failing to do so can result in penalties and complications if you return.
Double taxation treaties
Iceland has double taxation agreements (DTAs) with 46 countries, including the United States, the United Kingdom, Canada, Australia, Germany, France, Poland, India, China, and all Nordic and most EU member states. These treaties determine which country has the right to tax specific types of income and prevent you from being taxed twice on the same earnings.
If you are moving from a treaty country, the DTA may exempt or reduce taxes in Iceland on certain income types (pensions, royalties, dividends). To claim treaty benefits, you must file form 5.42 with Skatturinn. Until the exemption is officially approved, Icelandic tax will be withheld at the standard rate.
For Americans specifically, the US-Iceland treaty addresses most income categories. However, US citizens are still required to file US tax returns on worldwide income regardless of where they live. Foreign tax credits on your US return can offset Icelandic taxes paid on the same income. For more on the American angle, see our guide to moving to Iceland from the USA.
Child benefits
Families with children under 18 are entitled to barnabætur (child benefits) from the Icelandic state. These are income-related payments managed by Skatturinn, not a fixed universal amount. The less you earn, the more you receive.
To be eligible, you must be domiciled in Iceland (or have stayed for at least 183 days in a 12-month period) and have dependent children registered as living with you. Benefits are calculated based on your previous year's tax return and paid out four times a year (February, May, June, and October).
No application is needed. Once your child is registered in the National Registry and you file your first tax return, the calculation happens automatically. Child benefits are not taxable income. Single parents receive higher amounts than couples at the same income level. Additional payments apply for children under seven.
If your household income is above a certain threshold, the benefit is reduced or eliminated entirely. At typical dual-income salaries, many families receive partial or no child benefits. The exact amounts depend on your household's total income and number of children, and you can estimate them using the calculator on Skatturinn's website (available in Icelandic).
Tax tips for new residents
Activate your personal tax credit immediately. When you start a new job, tell your employer to use your personal tax credit from your arrival date. If you delay, you will overpay taxes for months and wait until the next assessment to get a refund.
Get an electronic ID early. You need one to file your tax return online and access your tax records at skattur.is. Apply at Skatturinn or your bank once you have your kennitala.
Keep records of foreign income. Iceland taxes worldwide income for residents. If you have income from abroad (rental property, freelance work, investments), you must declare it on your Icelandic return. Your home country's DTA with Iceland determines how it is taxed. If you are transferring money to or from Iceland, see our guide to sending money internationally for fee comparisons and tax implications.
Check the foreign expert discount before your first paycheck. The three-month application deadline is strict. If you miss it, you lose the benefit entirely.
Consider supplementary pension contributions. The 2% or 4% voluntary contribution triggers a mandatory 2% employer match, which is free money. It also reduces your taxable income.
For a full picture of what to expect financially, see our cost of living breakdown and our guide to your first 30 days in Iceland.
Frequently asked questions
How much tax will I pay in Iceland?
That depends on your salary. Taxes in Iceland are progressive, so at the median gross income of around 753,000 ISK per month, your combined rate falls across the first two brackets (31.49% and 37.99%). The personal tax credit of 72,492 ISK per month significantly reduces the effective rate. After tax and mandatory pension contributions, median take-home pay is roughly 540,000 ISK per month (as of 2024).
Do I pay tax from my first day in Iceland?
Yes. Your employer withholds tax from your very first paycheck. If you move to Iceland partway through the year, your personal tax credit is prorated based on the number of months you are resident.
Can my spouse use my personal tax credit?
Yes. Spouses and registered cohabiting partners can transfer unused personal tax credit between each other. This is useful if one partner earns significantly less or is not working.
Is there a tax-free income threshold in Iceland?
Not a formal one, but the personal tax credit effectively makes the first roughly 230,000 ISK of monthly income tax-free. Below that amount, the credit fully offsets the tax owed.
Do I need to file a tax return if I leave Iceland?
Yes. If you earned any income in Iceland during the calendar year, you must file a return, even if you have already left the country. You can file online at skattur.is using your electronic ID, or submit the simplified paper form.
What is the foreign expert tax discount?
Qualified foreign specialists can have 25% of their income exempted from tax for their first three years of work in Iceland. You must apply through Rannís within three months of starting employment. The discount applies to roles requiring expertise that is scarce in Iceland.
Last updated: March 2026