VAT in Iceland
As a general rule, those who are selling goods or services in Iceland must declare and pay value added tax (VAT). The rate is normally 24%, sometimes 11%, and must be added to the price of your goods or services before selling.
The rules also apply to all foreign companies and individuals with revenues originating in Iceland, not only to companies domiciled in Iceland.
In this guide we will cover the basics that you need to know before you conduct business in Iceland.
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Do you need to collect VAT?
You most likely need to collect, declare and pay VAT if you have any revenues originating in Iceland. For example if you are a tourism operator visiting Iceland for the summer, or if you come to Iceland to sell any kinds of goods or services.
There are several exemptions documented by the Icelandic tax authorities . The ones most likely to apply to foreign companies, tourism operators and similar, are the following:
- If you sell taxable goods or services for 2,000,000 ISK or less in each twelve-month period.
- If you are an artist, author, musician or composer.
- If you are transporting passengers to or from the country (but not within it).
- If you only ship your goods from abroad to customers in Iceland, and do not have any activities within Iceland itself.
A foreign company or individual will usually require the services of a VAT representative, sometimes called a VAT agent, in order to be able to declare and pay VAT in Iceland.
Want to see if you need a VAT representative?
What is the process?
When collecting VAT, you must add it to your prices before your customer pays, and your invoices should show the amount of VAT broken down to the 24% VAT rate and the 11% VAT rate, as well as your VAT registration number that will be supplied by your VAT representative.
The standard VAT rate is 24%. There is a reduced rate of 11% for several types of goods and services as documented here in detail . The ones most likely to apply to foreign companies are:
- Accommodations with a rental period of less than 1 month.
- Catering and sale of food and alcohol (but note that to sell alcohol you need a special permit).
- Transportation of passengers.
- The services of travel agents, tour operators and touring associations.
- The services of self-employed guides.
- The sale of books, newspapers, magazines, CDs and similar.
In general, VAT must be declared and paid to the tax authorities six times a year:
- No later than April 5th, for income relating to January and February.
- No later than June 5th, for income relating to March and April.
- No later than August 5th, for income relating to May and June.
- No later than October 5th, for income relating to July and August.
- No later than December 5th, for income relating to September and October.
- No later than February 5th, for income relating to November and December.
Companies with revenues of less than 4,000,000 ISK in the calendar year can apply to declare and pay just once per year, payable no later than February 5th.
There is very steep interest on late payments, therefore a process that ensures VAT is declared and paid on time is very important.
How to find a VAT representative?
Look no further. Along with providing general accounting and financial services to companies, we at Quarter provide a VAT representative service.
We offer two levels of service:
- VAT Rep, which is suitable for companies looking for a basic VAT representative service, and
- VAT Rep Plus, for those who want assistance with related activities in addition to basic VAT representation.
As your VAT agent, we will provide you with:
- Your registered VAT number, which we apply for with the tax authorities on your behalf
- Instructions on what details to include on invoices to your customers
- A simple process for delivering the necessary information and funds to us
- Reminders to provide the above details in a timely fashion, to avoid late fines
- All reports and summaries you require for your own books
VAT Rep Plus
Everything included in VAT Rep, plus:
- We help you through processes required so that tax on Icelandic income falls under the relevant double-taxation treaty
- We provide other custom consulting as required