Tax rate by region Iceland

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The information provided on this page is intended for general informative purposes only. It should not be interpreted as tax advice, nor is it meant to be. For advice on your particular tax responsibilities, consult with an experienced tax expert. PayPro Global does not assume any responsibility for any action taken or not taken based on the information presented here.

Iceland’s SaaS VAT Landscape: A Comprehensive Guide for Businesses

Businesses operating in Iceland should familiarize themselves with the nation’s Value-Added Tax (VAT) system, particularly as it applies to Software-as-a-Service (SaaS) offerings. With a standard VAT rate of 24% and a bi-monthly filing frequency, understanding these regulations is crucial for ensuring compliance and minimizing financial risks. This guide provides a detailed overview of SaaS sales tax in Iceland, covering key aspects such as VAT rates, filing requirements, record-keeping obligations, and best practices for managing compliance.

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Iceland

Iceland adopted a VAT system in 1988 to modernize its tax administration and enhance compliance.

Official government link: Ríkisskattstjóri

24.00%

E-products and services VAT/Sales tax rate

11.00%

Reduced tax rate

Reduced tax rate product categories

E-Books

Exempted product categories

There are no specific exemptions for digital goods and services in Iceland.

Reverse charge mechanism for B2B sales

Yes

Tax ID validation required

Yes

When do you have to register

Once the threshold has been exceeded

Online registration possible

Yes

Local representative needed

No

Registration procedure

If a foreign company sells taxable services in Iceland without having a permanent establishment there, it must appoint an Icelandic agent to act as its representative. This agent is responsible for notifying the Directorate of Internal Revenue (RSK) about the company’s activities, collecting VAT on taxable services, and remitting it to the Treasury. Both the foreign company and its representative are accountable for the collection and payment of VAT. Payments from Icelandic customers can be made directly to the foreign business and do not need to go through the representative.

However, registration is not required if the buyer is registered under Article 5 of the VAT Act and can account for the VAT on electronically supplied services as part of their input tax (B2B).

List of digital and electronic services liable for tax

Online services such as the supply and upgrade of digitized products, including software. It covers services that support a business or personal presence online, such as website or webpage hosting, and automated services generated in response to user input. It also includes the right to sell goods or services on online marketplaces, Internet Service Packages (ISPs) that offer more than just internet access, and various online maintenance services like remote systems administration and data warehousing.

Additionally, it encompasses accessing or downloading software, updates, drivers, desktop themes, images, screensavers, and digitized content like books and publications. Subscriptions to online newspapers, journals, weblogs, and website statistics are included, along with online news, traffic, weather reports, and real-time financial data. The list also mentions advertising space, search engines, music, jingles, ringtones, films, games, and automated online games. Lastly, it covers automated distance teaching, virtual classrooms, and online workbooks that are marked automatically without human intervention.

Penalties

Late VAT payments incur a 1% penalty charge for each day past the due date, up to a maximum of 10%, with no minimum penalty specified. The tax authorities may waive the penalty if the company provides sufficient justification.

If the VAT is not paid within a month of the due date, an additional penalty in the form of late payment interest, as determined by the Central Bank of Iceland (Seðlabanki Íslands), will be applied.

Furthermore, a surcharge of 5,000 ISK will be added when a VAT statement is filed instead of an estimate.

Registration threshold

ISK 2 million USD 14.500

Filing interval

Bi-monthly

Filing deadline

The deadline for submitting declarations and making payments is one month and five days after the conclusion of the two-month period.

E-invoicing requirements

Yes

Record keeping

The representative must maintain comprehensive VAT records for the foreign company’s transactions in Iceland, including both purchases and sales. These records, along with sales documents and vouchers, must be kept in Iceland for at least seven years following the end of the relevant accounting year.

How-To Guides: Iceland SaaS VAT

Step: 1 Threshold

Effective January 1, 2011, Iceland requires non-resident vendors of digital services to consumers (B2C)
in Iceland to register for and collect VAT if their sales exceed ISK 1 million in a 12-month period.
Effective January 1, 2017, Iceland increased the VAT registration threshold from ISK 1 million to ISK 2
million.

 

Registration is mandatory once this limit of ISK 2,000,000 within any 12-month period is exceeded.

Step: 2 Business Registration

Foreign SaaS providers can use the VOES (VAT on Electronic Services) simplified registration if they do not have a permanent establishment in Iceland. If a physical presence exists, a standard VAT registration via a local representative is required.

Step: 3 TIN/VAT Number

The VSK-númer (VAT number) is issued by Skatturinn (Iceland Revenue and Customs).

Step: 1 Standard VAT rate

Standard rate of 24% applies to most SaaS and digital services.

Step: 2 VAT Formula

Calculate the tax rate using the formula:

 

Tax Amount = Net Price x 24%

Step: 3 Reverse Charge (B2B)

Reverse Charge (B2B) applies. When selling to an Icelandic VAT-registered business, the supplier does not charge VAT. The buyer accounts for the tax on their own return.

Step: 1 Selling B2C

The seller must charge 24% VAT at the point of sale, based on the customer’s location (IP address, billing address, or bank country).

Step: 2 Selling B2B

Zero-rate the invoice. You must verify the buyer’s Icelandic VAT number to validate they are a taxable person. Note “Reverse Charge” on the invoice.

Step: 3 Invoice Requirements

Invoices must include:

• Full name/address of supplier and buyer.
• Supplier’s VSK-númer.
• Sequential invoice number.
• Date of issue.
• Description of service.
• Total amount, VAT rate, and VAT amount in ISK (or conversion rate if in foreign currency).

Step: 1 Filing Interval

Filing interval is bi-monthly (every two months) for most VOES/Standard registrants.

Step: 2 Filing Deadline

The filing deadline is usually by the 5th day of the second month following the period (e.g., Jan-Feb is due April 5).

Step: 3 Submission

Taxes should be filed electronically via the Skatturinn (RSK) web portal. Payments are typically made via bank transfer to the Central Bank of Iceland.

Step: 4 Record Keeping

Record-keeping is required for a minimum of 7 years for all accounting records and invoices.

PayPro Global Solution: Simplified Registration & Fiscal Representation

Navigating Iceland VAT registration and fiscal representation can be daunting. PayPro Global acts as your Merchant of Record, handling these complexities, including VAT registration and fiscal representation where needed, so you can focus on your business.

Learn more about our MoR services.

FAQ

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