Icelandic VAT returns

Once registered for value-added tax (VAT) in Iceland, businesses must declare all taxable transactions and remit any VAT due to the Directorate of Internal Revenue (Skatturinn).

Icelandic VAT returns are generally filed on a bi-monthly basis (every two months).

• Bi-monthly filing is the standard requirement for most VAT-registered businesses.
• In certain cases, larger businesses may be required or allowed to file monthly VAT returns, depending on turnover and reporting arrangements.

The Directorate of Internal Revenue assigns the filing frequency at the time of VAT registration and may revise it if the business’s activity changes.

VAT returns must generally be submitted by the 5th day of the second month following the end of the reporting period.

Payments of any VAT due must also be made by this same deadline.

Iceland uses standardised VAT return forms submitted electronically through the tax authority’s online portal.

VAT-registered businesses in Iceland must maintain comprehensive VAT records, including:

• Sales and purchase invoices
• Import and export documentation
• Accounting records and journals supporting VAT calculations
• Supporting documentation for VAT deductions and adjustments

Records must generally be retained for at least seven years and must be made available for inspection by the tax authority upon request.

VAT payments are due on the same date as the VAT return filing deadline.

Late payments may result in interest charges, administrative penalties, and additional sanctions under Icelandic VAT law.

Input VAT may generally be reclaimed on goods and services used for taxable business activities, including:

• Goods purchased for resale
• Capital assets and business equipment
• Professional services, utilities, and overhead costs
• Import VAT on goods used in taxable supplies
• Pro rata deductions for mixed-use expenses where permitted

Input VAT is not deductible on private or non-business expenses. Specific restrictions may apply to certain expenses, such as entertainment costs and expenses not directly linked to taxable activities.

All Icelandic VAT returns must be submitted electronically through the Directorate of Internal Revenue’s online system using the taxpayer’s secure credentials.

VAT payments are typically made via bank transfer to the Icelandic Treasury account designated by the tax authority.

Penalties may apply for VAT noncompliance, including:

• Late filing penalties for overdue VAT returns
• Interest on late VAT payments
• Penalties for incorrect, incomplete, or misleading VAT returns
• Additional sanctions in cases of repeated noncompliance or tax evasion

The tax authority publishes guidance on applicable penalty rates and enforcement procedures, which may change over time.

If input VAT exceeds output VAT for a given reporting period, the resulting VAT credit may be:

• Carried forward to offset future VAT liabilities, or
• Refunded by the Directorate of Internal Revenue, subject to statutory conditions and review.

Refunds are processed after the tax authority reviews the VAT return and supporting documentation. Processing times may vary depending on the taxpayer’s compliance history and the size of the refund claim.