Finance in Iceland

The Currency

The currency in Iceland is the Icelandic króna (ISK). Foreign currency can be exchanged in banks. You can use paper bills and coins in Iceland but it’s far more common to use payment cards or mobile phone apps to pay for goods and services.

Most shops, companies, businesses and taxis accept payment by card (debit and credit cards). Information on exchange rates for ISK against other currencies can be found here. Information on the Icelandic króna, interest rates, inflation targets and more can be found on the website of the Central Bank of Iceland.

 Banking services

An Icelandic bank account is necessary when living and working in Iceland. This will enable you to get your salary paid directly into your bank account and to get a debit card. A bank account is also important for daily financial transactions.

There are many banks in Iceland. Below is a list of the three main banks that offer service for individuals and have comprehensive information in English on their website.

Arion banki
Íslandsbanki
Landsbankinn

These banks have online banking services where you can pay bills, transfer money and deal with other financial matters. The easiest and cheapest way to transfer money abroad is by online banking. You can also visit your nearest bank branch and speak to representative for assistance with any banking related enquiries.

Open a bank account

To open a bank account in Iceland you need to have an Icelandic ID number (kennitala). You will also need original proof of ID (passport, driving licence or residence permit) and you need to have your domicile registered on Registers of Iceland.

 Taxable income

Taxable income includes all kinds of income from past and present employment, business and profession, and capital. All income received by the taxpayer is taxable unless it is listed as exempt. The collection of individual income taxes (state and municipal) on employment income takes place at source (tax is witheld) each month during the income year.

More information about taxable income is available on the website of Iceland Revenue and Customs (Skatturinn).

Personal tax credit

Personal tax credit lowers the tax withdrawn from employees’ salaries. To have the right amount of tax deducted every month from the salary, employees must inform their employers at the start of their contract of employment whether to use their full or partial personal tax credit. Without permission from the employee, the employer has to deduct full tax without any personal tax credit. The same applies if you have other income such as pension, benefits etc. Read more about personal tax credit on skatturinn.is.

Undeclared work

Sometimes people are asked not to declare the work they do for tax purposes. This is known as ‘undeclared work’. Undeclared work is illegal, and it has a negative impact both on society and the people who take part in it. 

Tax return

Via this page by the Iceland Revenue and Customs you can log in to file your tax return. The most common method to log in is to use electronic IDs. If you don´thave electronic IDs, you can apply for a webkey/password. The application page is in Icelandic but in the fill-in field you should add your social security number (kennitala) and hit the”Áfram” button to continue.

Here you find basic information on individual taxation from the Icelandic tax authorities, in many languages.

Everybody who is liable to pay tax in Iceland must file a tax return every year, usually in March. In your tax return, you should declare your total earnings for the previous year as well as your liabilities and assets. If you have paid too much or too little tax at source, this is corrected in July of the same year that the tax return is filed. If you have paid less than you should have, you are required to pay the difference, and if you have paid more than you should have, you receive a refund.

Tax returns are done online.

If a tax return is not filed, the Iceland Revenue and Customs will estimate your income and calculate the dues accordingly.

The Iceland Revenue and customs has published simplified directions on how to “Process your own tax issues” in the four languages, English, Polish, Lithuanian and Icelandic.

Instructions on how to file a tax return is available in five languages, English, Polish, Spanish, Lithuanian and Icelandic.

If you plan to leave Iceland, you must inform Registers Iceland and submit a tax return before you leave to avoid any unexpected tax bills/penalties.

Value added tax

Those who are selling goods and services in Iceland must declare and pay VAT, 24% or 11%, which must be added to their price of the goods and services they are selling.

VAT is called VSK (Virðisaukaskattur) in Icelandic.

In general, all foreign and domestic companies and self-employed business owners selling taxable goods and services in Iceland need to register their business for VAT. They are obliged to complete a registration form RSK 5.02 and submit it to the Iceland Revenue and Customs. Once they have registered, they will be given a VAT registration number and a registration certificate. VOES (VAT on Electronic Services) is a simplified VAT registration that is available to certain foreign companies.

Exempt from the obligation to register for VAT are those who sell labour and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity. The registration duty does not apply to employees.

More information about value added tax can be found on the website of the Iceland Revenue and Customs.