VAT
Value added tax (VAT) for the self-employed
VAT is not a cost to you; it is tax you collect for the state and pass on. The confusion is about when to start, which rate applies and what you may deduct. Here are the rules with the 2026 figures.
- Updated
- Sources reviewed
- Tax year
- 2026
VAT in Iceland is 24% as standard and 11% on certain goods and services. A self-employed person must register for VAT once taxable turnover exceeds 2,000,000 ISK in any 12-month period, then adds VAT to invoices, deducts input VAT on business purchases and reports the difference every two months, due on the 5th of the second month after the period ends. Healthcare, teaching, passenger transport and financial services are among exempt activities.
Key figures
- Standard rate
- 24%
- Reduced rate
- 11%
- accommodation, food, books, tourism passenger transport
- Mandatory registration
- turnover above 2,000,000 ISK in 12 months
- Reporting period
- 2 months
- due 5th of the second month after
- Surcharge on late payment
- up to 10%
- plus penalty interest
How VAT works
You add VAT (output VAT) to your selling price and collect it from the customer. On purchases for the business you pay VAT (input VAT). On the VAT return you deduct input VAT from output VAT and pay the difference. If input VAT is higher you receive a refund. For a VAT-registered buyer the VAT on your invoice is therefore not a cost; for individuals and unregistered buyers it is.
When registration becomes mandatory
| Situation | Rule |
|---|---|
| Taxable turnover above 2,000,000 ISK in 12 months | registration mandatory before the threshold is reached |
| Turnover below the threshold | registration optional if the activity is taxable |
| Exempt activity | no registration, no VAT, no input VAT deduction |
The threshold is measured over any rolling 12-month period, not a calendar year. If you expect to pass it in the first year, register straight away in RSK 5.02. Voluntary registration below the threshold can pay off if your customers are businesses and you have significant input VAT.
24% or 11%
24% is the standard rate and covers most contractor services: consulting, software, design, trades, cleaning, transport of goods and more.
11% applies to, among other things, accommodation, food, books, magazines, music, passenger transport in tourism (for example guiding with transport) and admission to bathing facilities. If you sell at both rates they must be shown separately on the invoice and in the books.
Exempt activities
Under Article 2 of the VAT Act certain activities are outside the scope of VAT, including healthcare, social services, schools and teaching, sports, passenger transport (for example taxis and buses), financial and insurance services, residential letting and, in specific cases, the work of authors and composers. Exempt activities do not charge VAT on sales and do not recover input VAT.
Cross-border work
Services sold to businesses outside Iceland are in many cases not subject to Icelandic VAT, because the service is deemed used abroad. The invoice is then issued without VAT with an explanation. Conversely, services bought from abroad for use in the business can carry VAT on purchases that you calculate and report yourself (and deduct as input VAT if the conditions are met). The rules are specific; check Skatturinn for your type of service.
Input VAT: what you may deduct
Input VAT may be deducted on purchases used in the taxable activity: equipment, software, materials, purchased services, a share of phone and internet. VAT may not be deducted on costs that are partly or wholly personal, on passenger cars except in specific cases, or on hospitality and gifts. A deduction requires a valid invoice showing the seller's VAT number.
Filing and due dates 2026
| Period | Due |
|---|---|
| January–February | 5 April |
| March–April | 5 June |
| May–June | 5 August |
| July–August | 5 October |
| September–October | 5 December |
| November–December | 5 February |
The return is filed at skattur.is even when turnover was zero. If it is not filed Skatturinn estimates the VAT and adds a surcharge; unpaid VAT carries a surcharge of up to 10% plus penalty interest. Low-turnover businesses can apply for annual filing. See the tax calendar.
Stopping
When the business ends you deregister with RSK 5.04. Until then the filing duty remains. On deregistration VAT may have to be settled on assets whose input VAT was deducted.
VAT in Fustle
In Fustle you choose the VAT treatment per invoice line and Fustle keeps the rates separate. Receipts in Invoicing + Expenses track input VAT and a VAT summary for the period is ready when you file. See Invoicing + Expenses.
Frequently asked questions
Do I add VAT to my first invoice?
Only if you are on the VAT register. If you are below 2,000,000 ISK of turnover and have not registered, you send the invoice without VAT and state that you are not VAT-registered. Once it is clear turnover will pass the threshold, registration must already be in place.
What counts towards the 2,000,000 ISK threshold?
All taxable sales over a 12-month period, excluding VAT. Exempt sales do not count. The threshold is not tied to the calendar year.
Do I get the VAT on my laptop back?
If you are VAT-registered and the laptop is used in the taxable activity you deduct the input VAT on the VAT return, in proportion to business use if it is also used personally. Keep the invoice showing the seller's VAT number.
What if I pass the threshold without having registered?
Register immediately. Skatturinn can demand VAT on sales from the point registration should have been in place, even if you did not collect it from customers.
Sources
- Skatturinn — almennt um virðisaukaskattskatturinn.is/atvinnurekstur/virdisaukaskattur/almennt-um-vsk/
- Skatturinn — skráning á virðisaukaskattsskráskatturinn.is/atvinnurekstur/virdisaukaskattur/skraning-a-vsk-skra
- Skatturinn — rafræn umsókn um VSK-skrá og launagreiðendaskráskatturinn.is/um-rsk/frettir-og-tilkynningar/umsokn-um-skraningu-a-vsk-skra-og-launagreidendaskra-nu-rafraen
- Skatturinn — tekjuskráning og reikningarskatturinn.is/atvinnurekstur/bokhald-og-tekjuskraning/tekjuskraning
- Lög um virðisaukaskatt nr. 50/1988althingi.is/lagas/nuna/1988050.html
General information, not advice on your situation. Skatturinn and other authorities assess each case. Check the review date and sources before relying on a figure.
Related content
- InvoicingInvoices: what they must contain and how to send them correctlyWhat must appear on an invoice under Icelandic rules: ID numbers, VAT number, sequential numbering, date, description, VAT rate. Credit notes, the seven-year retention rule and how to get paid.
- Getting startedRSK 5.02: registering as an employer and for VATWhat RSK 5.02 is, who must file it, the 8-day rule, what to fill in and how the electronic registration works. A guide for contractors and the self-employed in Iceland.
- Figures and datesTax calendar for the self-employed in IcelandEvery deadline the self-employed in Iceland need in 2026: withholding tax and social security by the 15th of each month, VAT every two months, pension contributions, wage statements and the annual tax return.
- Expenses and deductionsCapture the receipt while the purchase is still fresh.Capture receipts, record why a purchase relates to work and review AI-extracted details. Clear expense records make the next steps easier.
- Figures and datesFigures for the self-employed in Iceland 2026Every key figure for contractors and the self-employed in Iceland for the 2026 tax year in one place: tax brackets, personal tax credit, social security, pension contributions, VAT rates and registration thresholds, with sources.
Where does Fustle fit in?
Record the work and create the invoice. The service you choose determines the support included.