Living in Iceland · Taxes

Taxes in Iceland, for foreigners

The Icelandic tax system is open and most of the work is done for you. Your job is to check that the numbers the tax office already has are right, and to know what happens when something goes wrong.

Last verified 4 August 2026 · skatturinn.is (Skatturinn, Iceland Revenue and Customs)

How the system works, in short

You have a personal ID number (kennitala, say: KEN-ni-tah-la). Every month your employer tells Skatturinn (say: SKAHT-tur-in, the tax office) what you earned and takes the tax straight out of your pay. Once a year, in March, Skatturinn shows you a tax return that is already filled in. You check it, fix anything that is wrong, and send it. If you paid too much, you get money back in late May or June. If you paid too little, you can pay it back in parts.

Your situations, one by one

You just started a job and do not know what a tax card is

What actually happens: Your tax card (skattkort, say: SKAHT-kort, the paper that gives you your tax discount) must be given to your employer. If it is not, you get no personal tax credit, so the full 31.49% comes off your first pay instead of the credit cutting it by 72,492 ISK a month (2026).
What to do: Log in to skattur.is with electronic ID, and tell your employer in writing to use your personal credit from your first month. If you have only one job, give them 100% of it.
The common trap: Letting two employers each use 100% of the credit. You will have to pay the difference back at the end of the year, and it can be a lot.

You want to know which tax band your pay falls into

What actually happens: In 2026 there are three bands on monthly income:
31.49% on the first 498,122 ISK
37.99% from 498,123 to 1,398,450 ISK
46.29% above 1,398,450 ISK
Each part is taxed on its own. When you cross a line, the higher rate is only on the money above that line, not on all your pay.
What to do: Take your monthly pay before tax, take away 4% for pension, then split what is left across the bands above. Take 72,492 ISK off at the end. That is roughly the tax that will be taken.

It is March and you have not done your tax return

What actually happens: The tax return (skattframtal, say: SKAHT-fram-tal, the yearly report of what you earned) for last year is due in March on skattur.is. If you do not send it, Skatturinn sets a number itself (an áætlun, say: OW-etl-un, an estimate). That number is almost always higher than the truth, and they add a fee for being late.
What to do: Send it anyway, even late. They will replace their guess with your real numbers. Most people finish in fifteen minutes because the form is already filled in.
The common trap: Ignoring the estimate and hoping it goes away. The number stays on your record and can be sent to debt collection (innheimta, say: IN-hame-ta).

You earn money from outside Iceland

What actually happens: If you are a tax resident here (you live here more than 183 days in any 12 months), Iceland taxes all your income, from anywhere in the world, not only your Icelandic pay. Rent, freelance work and share income from abroad all belong on your Icelandic return.
What to do: Put the foreign income on the return. If the other country taxed it too, Iceland's double tax agreements usually let you count what you already paid. But only if you declare it.
The common trap: Thinking 'they will not know'. Iceland shares tax information with most of Europe, the United States and many other countries.

You are leaving Iceland this year

What actually happens: If you leave during the year, your return is due before you go, not next March. Skatturinn can hold back things you may want later, such as a refund or a final payslip, until that last return is sent.
What to do: Send a final return on skattur.is before you leave, give an address where post can reach you (or name someone in Iceland), and only close your Icelandic bank links after the final bill arrives.

You stayed in Iceland less than six months

What actually happens: You have limited tax liability. That means Iceland only taxes money you earned in Iceland. The rates are the same as above, and you get the same 4% pension deduction. You use a different form from the normal return; ask the local tax office which form fits your case.
What to do: Send your limited liability return to the local tax office before you leave, or as soon as you can after. You may get part of the personal credit back for the months you were here.

Editor's note (opinion)

Tax is one of the few systems here that treats foreigners exactly like Icelanders: same form, same rates, same dates. Problems are almost always about paperwork and timing, not unfair treatment. If you stay calm, send the return on time, and keep your payslips for seven years, you will rarely have trouble. Companion Iceland

Sources

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