Iceland operates a value-added tax (VAT) system known locally as Virðisaukaskattur (VSK). Iceland is not a member of the European Union (EU), but its VAT system is broadly aligned with international VAT/GST principles and shares similarities with EU VAT frameworks.
Icelandic VAT is governed primarily by the Value Added Tax Act No. 50/1988 and related regulations. VAT is administered by the Directorate of Internal Revenue (Skatturinn). The tax authority is responsible for issuing guidance, processing VAT registrations and returns, overseeing compliance obligations, and enforcing VAT rules in Iceland.
Businesses carrying out taxable activities in Iceland — whether resident or nonresident — must comply with Icelandic VAT obligations. This includes VAT registration where required, applying the correct VAT rates, issuing VAT-compliant invoices, maintaining appropriate accounting records, and filing periodic VAT returns in accordance with Icelandic VAT rules.
