VAT in Iceland

1. What is the VAT in Iceland?

VAT in Iceland is calculated at the standard rate of 25.5% for almost all types of assets and services. There is however a reduced VAT rate of 7% that applies in certain cases. Food, accommodation, books, newspapers, as well as hot water, electricity and domestic heating are subject to the 7% VAT rate in Iceland. VAT exemptions apply to health services, environmentally friendly vehicles, insurance and financial services. Exports are zero-rated from the VAT point of view. 

2. How can I get a VAT refund in Iceland?

Tax authorities from Iceland accept claims for VAT refunds. The main requirement that has to be met in order to receive a VAT refund in Iceland is to apply before the fifth day of every other month. Some documents might also need to be provided to the tax authorities when submitting the claim. Be sure to bring invoices, credit notes, invoice specification sheet and the original Certificate of Status of Taxable Person if you are asked to do so. 

3. How can I register for VAT in Iceland?

Registration for VAT in Iceland is not mandatory for all types of business that are set up in Iceland. Representatives of foreign businesses can also register for VAT purposes in Iceland. Nonresidents cannot apply for VAT registration in Iceland by themselves, therefore they need to appoint a legal representative with residence in Iceland. The tax authorities in Iceland are usually informed about the new company right after the register certificate is obtained. In order for a company to register for VAT, it is necessary that the entrepreneur or a legal representative submits a signed application. The file must also contain the company’s articles of association. The registration procedure is completed when the VAT number is issued.

4. How does intra-community VAT work in Iceland?

Iceland is not a member state in the European Union, therefore it is incorrect to mention intra-community VAT for transactions outside the country, especially between Iceland and countries that are part of the EU. These can be better named extra-community transactions, therefore VAT applies at the general rate.