Tax

All wage earners in Iceland are entitled to a personal tax credit, which is a monthly amount used to deduct tax payments. Do not expect the amount be the same every year, it changes according to the government amendments on tax rules and regulations. Further information on the personal tax credit amount can be found on Iceland Revenue and Customs.

For all international UI employees, the personal tax discount, a fixed monthly amount used to deduduct tax payments, gets activated by the arrival date of the employee. We try to make sure its usable for the first payments but it always depends on how rapidly the employment contract can be made.

International Staff Services in collaboration with the UI Payroll Office activates the personal tax credit for the University of Iceland new international staff.

Those who are yet living in Iceland

In order to have the right amount of tax deducted an employee must inform their employers whether or not to use their personal tax credit, depending on previous work history. This applies for example to those who have been living in Iceland for a while and have work for various employers. Without permission from the employee, the employer has to deduct full tax from the salary, without any tax credit. This is to prevent a multi-use of the tax credit, for instance for those who are employed by numerous employers.

More information on tax liability and your personal tax credit.

An example of deduction can be found on the Euraxess Iceland webpage.

It is your obligation as an employee to inform your employer on your tax credit status. You need to obtain a document from Iceland Revenue and Customs stating your previous work history. You will need an Icelandic ID number for this action. 

Please follow the instructions below.

• Sign in with electronic ID at skattur.is.
• Select "rafrænn persónuafsláttur" (electronic tax credit)
• Select "skoða staðgreiðsla" (review taxable income). 
• Select "yfirlit launagreiðanda" (employers summary) a PDF document.  
• Email the document to the Payroll Office laun@hi.is with a note on how much percent (%) of your tax credit you want to use at the University of Iceland. If your University job is your only job you will use it 100% at the University.

For married couples and those in cohabitation, if the spouse is not working the spouse's personal tax credit can be used as well for the benefit of the employee.The tax credit calculates from the day of arrival. If the spouse´s ID number is not ready upon arrival just follow the below steps to retrieve the document needed when it will be ready:

• Sign in with electronic ID at skattur.is.
• Select "rafrænn persónuafsláttur" (electronic tax credit)
• Select "skoða staðgreiðsla" (review taxable income). 
• Select "yfirlit launagreiðanda" (employers summary) a PDF document.  
• Email the document to the Payroll Office laun@hi.is with a note on how much per cent (%) of your spouse tax credit you want to use at the University of Iceland.

For joint taxation, login to Skatturinn and register for jont taxation. Both parties are obliged to do so and provide info on the length of the previous period of marriage/cohabitation.

Information on tax brackets for the current year can be found at Iceland Revenue and Customs.

Special rules apply to the taxation on remuneration to foreign experts that come to Iceland for work. The legislation, which came into effect January 1st 2017, stipulates that only 75% of the income is taxed for the first three years of employment.  Certain conditions and criteria need to be met, more information on them are to be found on Iceland Revenue and Customs.

International experts need to apply for the tax discount themselves within three months from the beginning of employment. Note that PhD students are not eligible to apply for a tax discount for International Experts.

Applications are hosted and processed by the Icelandic Centre for Research (Rannís) and will normally be processed within 3 weeks after all relevant documents are received.

Documents to be submitted:

• Application form - Please sign in with your electronic ID and look for the relevant fund. 
• Speciality statement on specific expertise written by the applicant.
• Curriculum vitae
• Employers statement on qualifications, expertise, value-added for the research/team, chosen from a poll of applicants etc. Written by the School´s HR manager and supervisor.
• Confirmation of legal domicile from Registers Iceland - form "confirmation of a legal registration history"

When an application is accepted a letter is sent to the University of Iceland in order to activate the individual tax discount in collaboration with the Financial Management Authority, that holds all state payroll responsibilities. The tax discount should be visible on the following pay check.

The tax discount applies to the very first salary and is corrected and reimbursed backwards. Iceland Revenue and Customs, withholds the excess tax and makes the corrections. Please direct all questions on the reimbursement to Iceland Revenue and Customs.

Those who are accepting the tax discount need to sum up the total discount amount for the year in the annual tax return. Please direct all question on the tax return to RSK.

Iceland Revenue and Customs  manages the tax return. The calendar year is the tax year in Iceland. The tax return is online only and opens March 1st every year and the deadline is approx 2 weeks later.

Some weeks before the opening of the tax return you will receive a document from Iceland Revenue and Customs in your online-bank on your total salary for the previous year. 

You need an electronic ID to login to www.skattur.is where you accept your tax return if it is correct.

The tax return is prefilled with your total salary amount for the previous year, the sum should match the sum on the document you received from Iceland Revenue and Customs.

If you have received any grants for conferences, meetings etc. please make sure you keep all receipts for expenses. To avoid the grant being taxed you can declare all expenses against the total amount of the grant. 

Those who are accepting the tax discount need to sum up the total discount amount for the year in the annual tax return. Please direct all question on the tax return to Iceland Revenue and Customs.

Informative brochure in various languages on how to file a tax return in Iceland.

Individuals who live abroad but have earnings or properties based in Iceland are eligible for a limited tax liability depending on a double taxation convention between Iceland and the individual country of residence. 

Application under double taxation conventions for exemption/reduction from Icelandic Taxation - form 5.42

Application under double taxation agreements for a refund of taxes paid in Iceland.

Both applications should be sent to Iceland Revenue and Customs to process.

All imperative information on tax exemptions can be found on the Iceland Revenue and Customs

Iceland Revenue and Customs sends the University of Iceland a confirmation when the exemption has been approved. The UI Payroll Office notifies the Financial Management Authority that puts it in action.