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Iceland: Extensive Revisions to Tax Regime Adopted

(Jan. 4, 2010) On December 21, 2009, the Althingi (Iceland's parliament) passed into law major changes to the country's taxation system. The changes include institution of a three-bracket progressive tax regime for personal income, an increase in the capital gains tax, and an increase in corporate tax rates. (Icelandic Parliament Passes Far-Reaching Tax Reform Bill into Law [in Icelandic], FRETTABLADID, Dec. 22, 2009, available at website, OPEN SOURCE CENTER online subscription database, No. EUP20091228228001.)

· The three brackets are rates of 24.1% for annual incomes below IsK2.4 million (about US$19,478); 27% on incomes between IsK2.4 million and IsK7.8 million (about US$62,302), and 33% on incomes in excess of IsK7.8 million. The maximum local tax rate will remain at 13.28%.

· The personal allowance will go up by IsK2,000 (about US$16) instead of changing in accordance with an index.

· Capital gains tax will be 18% instead of 10%, but there will be a tax-free allowance of IsK100,000 (about US$812).

· Corporate income tax will rise from 15% to 18%.

· A wealth tax of 1.25%, will be levied on net assets exceeding IsK90 million (about US$730,407) for individuals and IsK120 million (US$973,876) for couples.

· The fishermen's allowance will be phased out over a four-year period.

In the view of Independence Party leader Bjarni Benediktsson, the most significant measure adopted was the end to the personal allowance index, because it would provide the treasury with IsK9 to 10 billion (roughly US$73 million-81 million) in revenue “and that money would be collected from every wage earner.” (Id.)