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Iceland: 2015 and 2016 Tax Measures

(Dec. 31, 2014) Iceland’s Parliament, the Alþingi, approved legislation on December 16, 2014, that amends a number of the country’s tax laws. Except where otherwise noted, the changes take effect from January 1, 2015. (Hjordis B. Gunnarsdottir, Iceland: Some Budget Measures Adopted, TAX NEWS SERVICE (Dec. 18, 2014), International Bureau of Fiscal Documentation (IBFD) online subscription database.)

Personal Taxation

Child benefits and the phase-out percentage (percentage of benefits that are phased out at certain income levels) are increased. (Id.) The lowest income tax rate for individuals is temporarily decreased. (Hjordis B. Gunnarsdottir, Iceland: Some Budget Measures Adopted – Further Details, TAX NEWS SERVICE (Dec. 23, 2014), IBFD.) For tax year 2014, the lowest rate was 22.86% for income up to ISK3.48 million (about US$27,514). (Iceland – Individual Taxation, IBFD Tax Research Platform, IBFD (last visited Dec. 30, 2014).)

Indirect Taxation

The standard value-added tax (VAT) rate is decreased to 24% (from the current rate of 25.5%), and the reduced VAT rate is increased to 11% from the current 7%. Effective January 1, 2016, the current total VAT exemption for passenger transport will be limited and apply only to “public transport by land, air and sea on scheduled routes and organized transportation of individuals with disabilities and school children, and transportation by taxi,” while the reduced VAT rate will apply to other means of passenger transportation. (Iceland: Some Budget Measures Adopted, supra.)

Also effective on January 1, 2016, foreign and domestic travel agent services, which are currently exempt from VAT, will become taxable at a reduced VAT rate if they include the supply of goods or services utilized by tourists in Iceland, and travel agent services involving international transport of passengers as well as services used by tourists outside Iceland will be classified as zero-rated services (i.e., VAT-taxable, but the rate is 0%). These services, too, are currently exempt from VAT and input tax (i.e., the tax paid upon purchase) is not deductible. (Id.)

Excise duties, with the exception of excise tax on vehicles and fuel, are abolished under the new legislation. (Id.)

Finally, private housing benefits are temporarily increased. (Iceland: Some Budget Measures Adopted – Further Details, supra; see also for a description of the tax changes, Breytingar á virðisaukaskatti, almennu vörugjaldi og barnabótum um næstu áramót [Changes in the Value-Added Tax, General Excise Tax, and Child Benefits in the New Year], Ministry of Finance and Economic Affairs website (Dec. 19, 2014).)