Deductions for expenses

Payments to pension funds for private pension insurances are deductible up to 8% of total employment income and presumptive employment income. Otherwise, no significant deductions are allowed from employment income.

Personal tax credits

All individual taxpayers are entitled to a personal tax credit against the computed state and municipal income taxes on income. This credit amounts to ISK 530.466 for the income year 2011 (assessment year 2012). By married or cohabiting couples, the credit not used by one of the spouse is added to the credit of the other spouse.

Seaman’s credits

Crewmembers of most Icelandic vessels are entitled to a credit against calculated income tax, kr. 740 for year 2011. This special credit is a specified sum for each day the crewmember is employed on board a ship. This credit is deducted from the calculated income tax before the personal tax credit, and its amount is limited to the amount of income tax computed on the basis of wages received from the employer in question.

Children benefits - Under revision

Private housing benefits

Individuals, who buy a residence for their personal use and bear interest expenses, are entitled to recompence by the State Treasury. The amount of interest compensation is based on the interest for loans obtained for the purpose of financing a building or for purchase of a residence. The benefits are linked to income and net wealth. Limitations apply to the amount of interest on the basis of which the compensation may be calculated, and also to the amount of the interest compensation itself.

Losses

Losses on the sale of private (non-business) property are generally not deductible; however, they may be deducted from gains made on the sale of similar property in the same year.

Operating losses may only be deducted from business income. The net operating loss may be carried forward for 10 years. Carry-back is not allowed.

Rates

For the income year 2011 (assessment year 2012) the rate of state income tax is 22,9% - 31,8%. The average municipal tax on the same income is 14,41%.

Income of capital gains derived by individuals which are not engaged in business activities is taxed separately at a rate of 20%. In the case of dividends and interest, the tax is withheld at source. Income taxed this way must be reported on the tax return. In the case of capital gains from the sale of immovable property and shares, as well as rental income from private immovable and movable property, the tax is levied by way of assessment for residents but for non-residents the tax is withheld at source.