Icelandic VAT rates and VAT compliance

VAT in Iceland is administered by the Directorate of Internal Revenue (Skatturinn).

Iceland applies a standard VAT rate alongside a reduced rate and zero-rating for specific supplies.

Businesses registered for VAT in Iceland must apply the correct VAT rate to taxable supplies and remit the tax to the Directorate of Internal Revenue by submitting periodic VAT returns.

Some supplies are exempt from VAT in Iceland. These commonly include:

• Certain financial and insurance services
• Healthcare and medical services
• Education and vocational training
• Certain cultural and non-profit activities
• Residential rental of immovable property

Exempt supplies do not generate output VAT and generally do not allow recovery of input VAT related to those activities.

A VAT number is required for businesses carrying out taxable activities in Iceland.

Icelandic-established businesses must register for VAT once annual taxable turnover exceeds ISK 2 million within a 12-month period. Below this threshold, registration is not mandatory unless specific taxable transactions trigger compulsory registration.

Non-established (foreign) businesses making taxable supplies in Iceland must generally register for VAT from the first taxable supply unless a reverse charge mechanism or simplified regime applies. There is no turnover threshold for nonresidents.

Foreign suppliers of electronic services to Icelandic consumers must generally register and charge Icelandic VAT from the first supply.

Get more information on VAT registration in Iceland.

VAT-registered businesses in Iceland must file periodic VAT returns. Filing frequency is typically:

• Bi-monthly: Standard requirement for most businesses.
• Monthly: May apply in certain cases depending on business size or reporting requirements.

Returns include output VAT on sales and recoverable input VAT on purchases.

All filings are submitted electronically through the tax authority’s online portal.

Get more information on VAT returns in Iceland.

Foreign businesses storing goods in Iceland must consider VAT registration if those goods are held for sale.

Holding inventory in Iceland for resale typically triggers VAT registration obligations. Imports into Iceland may also trigger VAT registration, particularly where the foreign business acts as importer of record.

VAT is generally payable on the importation of goods into Iceland.

• Import VAT is due at customs clearance.
• VAT-registered businesses may recover import VAT as input VAT if the goods are used for taxable activities.

Foreign businesses supplying digital services (such as telecommunications, broadcasting, and electronically supplied services) to Icelandic consumers must register for VAT and charge Icelandic VAT from the first taxable supply.

The standard VAT rate of 24% generally applies.

VAT-registered businesses in Iceland may recover VAT incurred on taxable business expenses through their VAT returns by offsetting input VAT against output VAT.

Iceland does not operate an EU-style VAT refund system. Nonresident businesses generally need to be registered for VAT in Iceland to recover input VAT.

Iceland applies zero-rating to qualifying exports of goods and services supplied outside Iceland. Zero-rating allows VAT to be charged at 0% while preserving the right to recover related input VAT, provided documentary requirements are met.

Businesses must issue VAT-compliant invoices that include:

• Supplier and customer details
• VAT identification number
• Description of goods or services
• VAT rate(s) and VAT amount

Iceland does not operate a real-time invoice clearance system or SAF-T reporting regime for VAT purposes.

Time-of-supply rules:

• Goods: VAT generally becomes chargeable when the goods are delivered or when the invoice is issued, whichever occurs first.
• Services: VAT is generally due when the service is supplied or when payment is received, depending on the circumstances.
• Imports: VAT is due at customs clearance.

VAT records must generally be retained for at least seven years. VAT returns and payments are due in accordance with the applicable reporting cycle (typically bi-monthly).