Tax rates

Please note that this tax rate section is for Foreign Experts who move to Iceland to work for Icelandic companies and is NOT relevant to the Remote Work Long-Term Visa.

The tax rate in Iceland depends on your salary.

For the income year 2019, the rate of income and municipal tax is calculated in two tax brackets:

Taxable income is salary minus the pension fund premium. The personal tax credit, which is ISK 56,447/month, is deducted from calculated taxes. Find more from the Directorate of Internal Revenue.

If your salary is high enough to reach the second tax bracket, the amount up to ISK 927,087 will be taxed at 36.94%, and the remainder of your salary will be taxed at 46.24%.

You are responsible for paying your taxes in Iceland! Everybody is entitled to a personal tax credit (persónuafsláttur) of ISK 56,447 per month, and this is deducted from your calculated taxes. If you work more than one job, tell each employer what percentage of the tax credit you wish to use at each job.

Here is a video with English subtitles explaining Icelandic tax credits.

Couples have the choice of registering officially for cohabitation or getting married in Iceland. Both provide equal rights to collective taxation and reimbursements as well as maternity and paternity leave, although marriage is better for inheritance cases. Straight and gay couples have equal rights for both cohabitation and marriage. If you are moving to Iceland with your spouse or partner, you will be asked to prove your status as "cohabiting" or "married" in your home country to be recognized in Iceland.

If your spouse is not working, you may use their personal tax credit as long as you are married or in a registered partnership, and either have a child together or have proof of living together for more than a year. You must both reside in Iceland and apply in writing to do a joint tax return. You may send the application along with your tax return, but you must both sign it. If you do your taxes together, you are both responsible for each other's tax returns.

Only 75% of foreign experts' income is taxed for the first three years they work in Iceland as long as certain conditions are met. For more information about the foreign expert tax discount and the terms for the discount can be found at the Directorate of Internal Revenue.

You can apply for this tax discount through the Icelandic Centre for Research. Your application must be submitted no later than three months from the date you start working in Iceland. See factsheet.

The tax year is the calendar year. In March each year, you can fill out your tax return online, logging in with your electronic ID (Icelandic only). Spouses can do their taxes together instead of individually.  Log in page.

You can fill out the simplified tax return form on paper if you intend to live in Iceland for less than three years. It has instructions on page two. You can turn in the simplified tax return on paper at any time during the year. 

Simplified tax return form (English).

Your annual personal tax credit is applied in proportion to the duration of your stay in the country. If you work in Iceland for less than 182 days in any 12 months, you have limited tax liability in Iceland and continue to pay taxes in your home country. You only pay tax on income earned in Iceland to the Icelandic tax authorities. However, if you reside in Iceland, you have a full tax liability here, regardless of the origin of your income. This will remain the case for three years after you leave Iceland unless you fulfill tax obligations in another country. If you live in Iceland for more than half a year (183 days every 12 months), you are liable to pay tax on all your income in Iceland. More information on Tax Liability.

When moving away from Iceland, you must make sure your taxes are in order and maintain your Icelandic bank account until the taxes have been paid or reimbursed the following year. You can do so by filling in the simplified tax return form and notifying the tax authorities of your new address abroad or of the address of a representative in Iceland.

When you leave Iceland, you must register your departure with Registers Iceland. This must be done in person before you go. 

If you forget to file your taxes before leaving Iceland, you may submit them online until March of the following year (Icelandic only). The assessment will take place at the end of May the next year, so you should go to your personal tax page to see if you owe taxes or if you have overpaid any. If you owe, the amount will increase by 2.5% due to late payment. Contact the tax authorities to settle your debt! If you want a representative to claim this for you, they will need your written consent, with two witnesses verifying your signature. The certified consent letter must include your ID number (kennitala) and also those of the witnesses.

More information on tax returns.

Your after-tax income is the amount you will be paid after taxes, pension fund contributions, and union dues. Your after-tax income is based on your salary before taxes (and which tax brackets apply) and how much you choose to pay to the pension funds.

In these examples, we will assume that you will make the minimum contribution to the pension fund and belong to a union that charges exactly 1% membership fees. For simplification, we will assume that you have no salary benefits such as vehicle allowance or per diem, although they are rather common. Furthermore, we will assume you are single. Remember, if you are married or cohabiting, and your spouse is not working, you may use your spouse's tax credit if you meet the criteria and have a higher after-tax income.

These examples are for illustration only! We want to provide you a feeling for what your take-home salary will be. 

With a salary of ISK 500,000, your after-tax income is ISK 351,583.

With a salary of ISK 750,000, your after-tax income is ISK 500,427.

With a salary of ISK 1,000,000, your after-tax income is ISK 643,106.

With a salary of ISK 1,250,000, your after-tax income is ISK 769,630.

If you know your salary already, here is a helpful tax calculator. You will have to deduct union dues yourself.

Laun greiðast: Vikulega / Mánaðarlega = Salary paid: Weekly / Monthly

Hjúskaparstaða: Einhleypingur / Sambúð/hjónaband = Marital status: Single / Married/cohabiting

Tekjuárið = The salary year

Launamánuður = Wages for the month 

Mánaðarlaun = Monthly salary

Bifreiðahlunnindi = Car benefits 

Dagpeningar = Per diem

Ökjutækjastyrkur = Car allowance

Lífeyrissparnaður = Pension fund premium

Iðgjald í lífeyrissjóð = Monthly payment to a pension fund (4%)

Iðgjald í séreignarsjóð = Additional (optional) monthly payment to pension savings 

Nýting persónuafsláttar % = % of the tax credit you want to use

Uppsafnaður persónuafsláttur = Tax credit that you have not used so far this year

Fyrir útreikning á tryggingagjaldi o.fl. = To calculate the payroll (leave this blank).

There is a joint taxation website for detailed information for those moving and working between the Nordic countries. Here you will find more information about joint tax arrangements and a forum to ask questions.