Personal taxes

Personal tax allowance

• The personal tax allowance is a tax discount. Everyone aged 16 and older and who resides in Iceland is entitled to a personal tax allowance.
• The personal tax allowance is fully transferable between spouses or cohabitants.
• Personal tax allowance may accrue between months and, as appropriate, the allowance that one spouse has not used may be used by the other.
• Accrued personal tax allowance that is not utilised within the tax year will lapse at the beginning of the new year.

Tax cards

• Tax cards grant the right to a personal tax allowance, and are sent to those who have reached the age of 16. The same applies to those who transfer their legal residence to Iceland.
• In order to ensure that the wage payer can take account of personal tax allowance when calculating withholding taxes, the tax card must be delivered to the employer before the first wage payment is made.
• Care must be taken to get the tax card back when changing work, and that the correct information on the utilisation of personal tax allowance is entered on the card.
• Personal tax allowance may be utilised with more than one wage payer by dividing the tax card

Taxes on the wages of individuals

• Taxes on the wages of individuals are divided into state income tax, on the one hand, and, on the other, municipal income tax that is paid to the local authorities.
• Tax-free limits take account of personal tax allowance and the withholding tax percentage. These are the limits that are taken into account before taxes are paid on wages.
• The employer deducts the withholding tax from the salary of the wage earner and sends it to the collector for the Treasury.
• Wage earners who are paid a salary for seafarer's work on an Icelandic vessel or on a vessel operated by an Icelandic shipping company enjoy an additional special allowance referred to as seamen's allowance.
• The municipal income tax that wage earners pay on their salaries is one of the income bases of the municipalities. The percentage differs between municipalities.
• When calculating the amount of municipal income tax, the average municipal income tax of all the municipalities is taken into account. In 2011 the minimum municipal income tax will be 12.44%, and the maximum will be 14.48%.
• Everyone between the ages of 16 and 70 who has an income that exceeds the tax-free limit pays a fee into the construction fund for the elderly. This fee is a poll tax, i.e. at tax that is levied equally on everyone.
• Children younger than 16 have a separate tax-free limit, and pay a tax of 6% on income that exceeds the tax-free limit.

Tax returns

• Tax returns must be submitted to the Regional Tax Director in March every year. Tax returns provide information on income, assets and debts from the previous year.
• In general, tax returns are submitted electronically, although if this is not possible, the tax return may be submitted on paper.
• 1. On 1 August, individuals receive collection and tax assessment slips from the Regional Tax Directors. These contain information on tax settlement.
• If the tax payer has paid too much in taxes, a refund will be paid. If too little has been paid in taxes, the tax payer must pay the difference.
  

Other taxes

• Individuals pay a 20% tax on capital gains.
• Capital gains include:

• Interest income
• Dividends
• Sales profits
• Rental income

• At the close of 2005 property tax was discontinued.
• Inheritance tax is 10%, although no tax is paid on the first one and a half million of the tax base of the estate of a deceased person.
• Some lottery winnings are taxable. A list of lotteries that pay tax-free winnings is published in the guidelines accompanying the tax return forms for individuals.

Links of interest

• Internal Revenue Directorate
• Customs and taxes, Ministry of Finance
• Directorate of Customs, Taxes 
• Taxes and Tax Returns, Multicultural and Information Centre
  

Laws and regulations

• Legislation, Ministry of Finance