Tax rate by region Iceland

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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.

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 are zero rated in Iceland

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

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.

Effortless Subscription Management and Billing

VAT in Iceland: Key Considerations for SaaS Businesses

Iceland adopted a VAT system in 1988, aligning its tax administration with international standards and encouraging compliance. Businesses selling SaaS in Iceland are subject to the standard 24% VAT rate, applicable to most goods and services. However, it’s crucial to note that certain categories, such as food, books, and certain cultural services, benefit from a reduced 11% VAT rate. While digital services aren’t exempt from VAT in Iceland, understanding these reduced rate categories can be beneficial for businesses with diverse offerings.

Iceland’s VAT Landscape: Bi-Monthly Filing, Record Keeping, and E-Invoicing

Staying compliant with Iceland’s VAT regulations requires meticulous attention to detail. Businesses must file their VAT returns bi-monthly, ensuring all transactions within that two-month period are accurately reported. The payment deadline is one month and five days after the bi-monthly period concludes, emphasizing the importance of prompt remittance. Additionally, maintaining meticulous records of all sales and purchases is critical for audit purposes. These records, along with sales documents and vouchers, must be retained in Iceland for a minimum of seven years after the relevant accounting year. Thankfully, Iceland supports e-invoicing, a streamlined approach that simplifies VAT compliance and reduces administrative burdens.

What are the key aspects of SaaS sales tax in Iceland?

SaaS businesses in Iceland must adhere to the standard 24% VAT rate, file returns bi-monthly, and strictly follow the payment deadline. Understanding the lack of exemptions for digital services and maintaining accurate records for seven years are crucial aspects of compliance. Additionally, adopting e-invoicing can significantly streamline the process.
How can businesses efficiently manage VAT compliance across multiple regions?

Maintaining compliance in various regions requires a thorough understanding of each location’s specific VAT requirements. Consulting with regional tax professionals or leveraging specialized compliance tools can ensure adherence to diverse regulations and minimize the risk of inconsistencies.
How does the customer's location influence my SaaS sales tax obligations?

The customer’s location dictates whether the standard VAT rate or a reduced rate applies to your SaaS offering. For instance, if your customer resides within the European Union (EU), you may need to charge VAT at the applicable EU rate instead of the Icelandic rate. It’s crucial to identify your customers’ locations to determine the correct tax rate and comply with relevant regulations.

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