Iceland taxes residents on worldwide income and non-residents on Iceland-source income only. Iceland operates a self-assessment system for corporate tax. Iceland reduced its standard corporate tax rate from 21% to 20%, effective 2026, per PwC's Iceland significant-developments summary.
The Icelandic tax year is the calendar year. The individual filing deadline is generally mid-March of the following year.
Iceland's headline corporate income tax (CIT) rate is 20%.
The headline personal income tax (PIT) rate is 31.35% plus municipal tax.
The standard VAT/GST (or equivalent consumption tax) rate is 24%.
An individual is an Icelandic tax resident if domiciled in Iceland or staying in Iceland 183 days or more in aggregate within any 12-month period, resident from the date of arrival. Residents are taxed on worldwide income; tax liability generally ends upon departure, but former domiciled residents remain fully liable in Iceland for three years after leaving unless they prove tax residency elsewhere. Non-residents present 183 days or less are taxed only on Iceland-source income.
A non-Icelandic entity has an Iceland permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Iceland on the entity's behalf, following the OECD Model Treaty definition as applied under Icelandic domestic law and any applicable tax treaty.
An Icelandic resident holding at least 50% of the capital or voting rights of a non-resident company registered in a low-tax jurisdiction (per a list maintained by the Ministry of Finance) is taxed currently on that company's income regardless of distribution; the same applies where an Icelandic resident controls and benefits from such a company without necessarily meeting the ownership threshold directly. The regime does not apply where the foreign entity is protected by an Iceland-negotiated tax treaty with the low-tax country, or is registered in another EEA member state with genuine business operations and a treaty exists between the relevant states.
Iceland has no fixed debt-to-equity ratio. Since January 1, 2017, an EBITDA-based interest limitation rule (Income Tax Act) caps deductible net interest on related-party debt at 30% of EBITDA, applying once interest expenses exceed ISK 100 million.
Iceland does not use an elective check-the-box classification system; entity classification generally follows the entity's actual legal characteristics. Iceland has implemented anti-hybrid provisions broadly aligned with OECD BEPS Action 2 principles.
No foreign bank account or foreign financial asset reporting regime exists requiring residents to separately disclose foreign accounts; foreign income is reported through the standard annual tax return.
Iceland provides a participation exemption for qualifying dividends and capital gains between resident companies and from qualifying EEA subsidiaries, subject to minimum ownership conditions - consistent with Iceland's CFC regime taxing both active and passive CFC income (per Tax Foundation data).
Iceland has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Iceland, capped at the Icelandic tax otherwise due on that income.
Iceland has signed double tax agreements with 44 states, per the Icelandic government, plus a multilateral Nordic administrative-assistance treaty (Norway, Denmark, the Faroe Islands, Greenland, Finland, Iceland, and Sweden) and separate tax information exchange agreements.