Icelandic VAT registration

In Iceland, the requirement to register for value-added tax (VAT) depends on whether the business is established in Iceland and the nature of the taxable activities carried out.

For Icelandic-established businesses, VAT registration is generally required once annual taxable turnover exceeds ISK 2 million within a 12-month period. This is the statutory domestic threshold under the Icelandic Value Added Tax Act. Businesses below this threshold are not required to register for VAT unless they choose to register voluntarily or carry out activities that trigger mandatory registration.

There is no VAT registration threshold for nonresident businesses. Foreign businesses making taxable supplies in Iceland must generally register for VAT from the first taxable supply unless a reverse charge mechanism applies or a simplified regime is available for certain services.

As Iceland is not a member of the EU, the EU One-Stop Shop (OSS) threshold does not apply. However, foreign businesses supplying electronic services (e-services) to consumers in Iceland may be required to register under a simplified VAT regime and charge Icelandic VAT from the first taxable supply.

Apart from the domestic ISK 2 million threshold for Icelandic-established entities, there are no general simplification thresholds. VAT registration is typically mandatory once the relevant taxable activity is undertaken, particularly for nonresident or cross-border business models.

Foreign businesses may need to register for Icelandic VAT if they engage in activities such as:

•  Importing goods into Iceland (imports trigger VAT at customs clearance)
• Selling goods or services in Iceland directly to Icelandic customers
• Making domestic B2B or B2C supplies within Iceland where reverse charge does not apply
• Providing electronically supplied services or digital products to Icelandic consumers
• Holding inventory in Iceland (for example, in a warehouse or fulfilment centre)
• Running ecommerce operations delivering taxable goods into Iceland

Registration may also be required where a business makes zero-rated exports but also carries out taxable domestic activities.

To register for VAT in Iceland, applicants (resident or nonresident) typically need to provide:

• A completed VAT registration application submitted to the Directorate of Internal Revenue (Skatturinn)
• Legal entity details: company name, legal form, country of incorporation, registered address, directors or managers
• Description of business activities and expected Icelandic taxable turnover
• Details of taxable supplies to be made in Iceland
• Power of attorney for a local representative, where required (often mandatory for nonresident businesses)
• Banking and contact details for VAT correspondence
• Supporting documentation demonstrating the nature of Icelandic activities (especially for nonresident applicants)

Applications are submitted to the Directorate of Internal Revenue, typically via its electronic systems. VAT registration should generally be completed before taxable supplies begin, as late registration may result in penalties or backdated VAT assessments.

Once approved, the tax authority issues an Icelandic VAT number. Registration timelines may vary depending on the completeness and complexity of the application.

• Structure: Based on the company’s kennitala (national ID number)
• Used for VAT reporting, invoicing, and interaction with the Icelandic tax authority

• Filing periodic VAT returns (typically bi-monthly, depending on the reporting cycle)
• Charging and collecting Icelandic VAT at the applicable rates (standard rate 24%, reduced rate 11%)
• Issuing VAT-compliant invoices in accordance with Icelandic VAT rules
• Maintaining VAT records and accounting documentation in line with Icelandic legislation
• Paying VAT due by the statutory deadlines

Failure to comply with Icelandic VAT requirements may result in penalties, interest charges, and enforcement action by the Directorate of Internal Revenue, particularly in cases of late registration, incorrect filings, or unpaid VAT liabilities.