Being a Contractor in Iceland (2026)

Working as a contractor (sjálfstætt starfandi) in Iceland means you are your own employer. You handle invoicing, pay income tax in three brackets (31.49% / 37.99% / 46.29%), social security (6.35%), and pension (15.5%). Fustle handles the paperwork so you can focus on your work.

What is a contractor in Iceland?

A contractor (verktaki) is a self-employed person who invoices clients for services rather than receiving a salary from an employer. You register with Skatturinn, obtain a kennitala for your business activity, and report taxes monthly.

Unlike employees, you pay both the employer and employee portions of social security and pension. Your clients do not withhold tax for you — that is your responsibility.

Registration: RSK 5.02 and the 8-day rule

Before you start working or sending invoices, file RSK 5.02 with Skatturinn at least 8 days in advance. This form registers you on the employer registry (launagreiðendaskrá) and optionally on the VAT registry.

Exception: if your annual calculated remuneration (reiknað endurgjald) is under 700,000 ISK, you do not need employer registry registration — but you still owe taxes on actual income. When revenue exceeds 2,000,000 ISK in 12 months, VAT registration becomes mandatory.

Taxes, social security, and pension in 2026

Contractors pay income tax in three progressive brackets:

31.49% on income up to 498,122 ISK/month
37.99% from 498,123 to 1,398,450 ISK/month
46.29% above 1,398,450 ISK/month

On top of income tax you pay tryggingagjald (6.35% of calculated remuneration) and pension contributions (15.5% total: 4% employee + 11.5% employer). The personal tax credit is 72,492 ISK/month in 2026, reducing your tax bill.

VAT (VSK) for contractors

Value Added Tax (virðisaukaskattur / VSK) applies to most goods and services. Standard rate is 24%; reduced rate is 11% for items like accommodation and some food services.

You must register for VAT when turnover exceeds 2,000,000 ISK in any 12-month period. Once registered, charge VAT on invoices and file bi-monthly returns. Fustle calculates the correct rate and submits returns automatically.

How Fustle simplifies contractor life

Fustle is built for Icelandic contractors. The Invoicing service supports collection and payout while you handle filings; Laun includes the withholding, pension, and reporting stated in the service terms.

Your dashboard provides records and estimates, but you remain responsible for checking personal tax information and completing your annual return.

Related guides

Official resources

Frequently asked questions

Do I need to register before my first invoice?

Yes. File RSK 5.02 at least 8 days before you start working or invoicing. Skatturinn needs time to process your registration and issue your staðgreiðsluvefslykill (withholding web key).

What if I earn less than 700,000 ISK per year?

You are exempt from employer registry registration if your calculated remuneration is under 700,000 ISK/year. However, you still must report and pay tax on actual income received.

Can Fustle handle everything for me?

It depends on the service. Invoicing leaves tax filings to you; Laun includes the withholding, pension, and reports described in the service terms. You still complete your annual tax return.

Choose the service that matches your responsibilities

Invoicing is for users who handle their own filings. Laun includes defined withholding, pension and reporting services.