Iceland raises e-book VAT rate to 11%

Iceland has reclassified electronic books from the reduced VAT rate of 7% to 11%. The standard Icelandic VAT rate is 24% following a cut from 25.5% in January 2015.

Whilst not part of the European Union, Iceland’s VAT regime closely tracks the consumption tax framework of the EU. This is because the EU is Iceland’s major trading partner, but also because Iceland had planned to join the EU. However, the crash of the Icelandic finance sector during the financial crisis of 2007/8 put this ambition back several years.

In the EU, there is disagreement on the VAT rate treatment for e-books. In most EU member states paper-based books are rated at a reduced or nil VAT rate. However, the EU VAT Directive requires e-books to be rated at the full, standard VAT rate. A number of countries, including Luxembourg, France, Malta and Italy, have broken from this requirement and instead rate e-books at the reduced rates. The European Commission has referred Luxembourg and France to the European Court of Justice to seek a ruling on e-book VAT rates.

The place of supply rules for electronic services to consumers changed in January 2015.  Providers based in the EU must now charge the VAT rate of the country were their customer is resident.  The same rules apply to non-resident suppliers of e-books and other digital services to Icelandic consumers.