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Iceland tax

Special regime for new residents: 25% of employment income deducted from taxable income.

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Special regimes for new residents

Special regime

Foreign experts: 25% of employment income deducted from taxable income for three years

Tax relief

Details
  • On: 75% of employment income after a 25% deduction

Approved foreign experts are taxed on 75% of their employment income for the first three years of work in Iceland. 3

Taxed on

75% of employment income after a 25% deduction; social security tax, pension contributions and child benefits are based on total income.

Who it applies to

  • The employee did not live or hold a legal domicile in Iceland for the 60 continuous months before starting work, not counting the first three months of stay.
  • The expertise is limited or non-existent in Iceland.
  • The employer is an Icelandic legal entity or a foreign company with a permanent establishment in Iceland.
  • The job involves research, development and innovation, teaching or specialised tasks, or management or core project work for the employer.

Exclusions

  • The application must reach the committee within three months of starting work in Iceland.

Tax residence

Applies from the start of employment for three years; the 60-month non-residence test applies before the start.

Visas

Suits holders of an expert-work residence permit, but approval comes from a Ministry of Finance committee, not the Directorate of Immigration.

Other taxes

Applications go to the Icelandic Centre for Research (Rannís); tax withheld before approval can be corrected with form RSK 5.17.

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Which visas the regimes apply to

Standard rules and foreign-source income

Standard rules

Personal income tax 2026: three withholding brackets of 31.49%, 37.99% and 46.29%

Worldwide income

Details
  • On: Employment income less the mandatory pension fund contribution
  • Limit: ISK 498k/mo ≈ $4,080

Employment income is taxed in three monthly brackets: 31.49% up to ISK 498,122, (≈ $4,080) 37.99% up to ISK 1,398,450 (≈ $11,500) and 46.29% above, including municipal tax. 1 2

Taxed on

Employment income less the mandatory pension fund contribution; residents are taxed on worldwide income, non-residents on income from Icelandic sources.

Who it applies to

  • Residents (stay of six months or more in a twelve-month period) have unlimited tax liability from the day of arrival.
  • Capital income, including sales profits, dividends and interest, is taxed at 22%; ISK 300,000 (≈ $2,460) per person a year is tax-free on interest and on dividends and gains from shares in listed companies.

Exclusions

  • Stays of less than six months in twelve give limited tax liability on Icelandic-source income only.
  • Residents are taxed on foreign-source income like other income; former residents stay liable for 3 years unless they show they are taxed elsewhere.

Limits

  • ISK 498,122 a month (≈ $4,080) · Upper limit of the 31.49% bracket (2026 withholding)
  • ISK 1,398,450 a month (≈ $11,500) · Upper limit of the 37.99% bracket; income above is taxed at 46.29%
  • ISK 72,492 a month (≈ $590) · Personal tax credit deducted from calculated tax (ISK 869,898 (≈ $7,130) a year)

Tax residence

A person staying in Iceland for six months or more in a twelve-month period is a resident with unlimited tax liability from the day of arrival; municipal tax is 14.94% on average and included in the brackets.

Visas

Immigration status does not set tax residence; the stay in Iceland does.

Other taxes

VAT is 24% (reduced rate 11%); employers pay 6.35% payroll tax; workers pay a mandatory 4% pension fund contribution.

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VAT, social security and other taxes

Questions people ask

Who qualifies for 25% of employment income deducted from taxable income?

The employee did not live or hold a legal domicile in Iceland for the 60 continuous months before starting work, not counting the first three months of stay. Suits holders of an expert-work residence permit, but approval comes from a Ministry of Finance committee, not the Directorate of Immigration.

≈ USD figures are approximate: daily reference rates from ExchangeRate-API, dated 12 Oct 2026, refreshed when the site is updated.

Sources (3)

Official sources

  1. Key rates and amounts 2026 · Iceland Revenue and Customs (Skatturinn) · checked 2026-10-11
  2. Tax liability · Iceland Revenue and Customs (Skatturinn) · checked 2026-10-11
  3. Foreign experts · Iceland Revenue and Customs (Skatturinn) · checked 2026-10-11