VAT on tourism in Iceland
Scope and exemptions
Value Added Tax (VAT) is an indirect consumption tax levied on all stages of domestic business transactions, as well as on the imports of goods and services. The tax liability covers all goods and valuables, new and used, all labour and services, regardless of name, except those which are directly exempt from VAT.
Activities related to tourism in Iceland are taxed at the standard rate, the reduced rate or are exempt from VAT. By January 1st, 2016, various tourism related activities which were exempt from VAT became subject to VAT, mostly at the reduced rate. By these changes VAT on tourism in Iceland are broadly as follows:
Various services are exempt from VAT which means that the suppliers of such services cannot charge VAT or get credit for input VAT on purchases for the exempt (part of the) business. Regarding tourism in Iceland the services of travel agencies and tour operators are subject to VAT at the reduced rate to the extent that their sales are on behalf of others and for their account as regards the sale and delivery of services listed in this chapter, e.g. the sale of fishing permits in rivers and lakes. However, their sale of exempt services in their own name is VAT-exempt. Following services are exempt from VAT in Iceland:
The services of libraries, museums and similar cultural activity. Included are admission charges to concerts, ballet and stage performances and theatres, provided such gatherings are in no manner associated with other gatherings or restaurant operations.
Athletic activities. The same applies to the rental of athletic facilities, admission charges to swimming pools, ski lifts, athletic events, athletic exhibitions and health facilities. The exemption also includes admission charges to bathing facilities in sports structures.
Public transport, i.e. regular trips on a given domestic route according to a published schedule, whether by land, air or sea. Other exempt transportations are with taxis, medical transportation and organized transportation for the disabled, school children and elderly people. To the extent that transportation of passengers is exempt from VAT it also extends to passenger luggage and transport vehicles directly related to the transportation of passengers.
Artists. Sale of art that falls under Custom Code numbers 9701.1000 – 9703.000 is exempt when sold directly by the artist. Auction of these items is also exempt, cf. Act no. 28/1998.
Rental of real property, i.e. when rented for more than one month and the general conditions of property rentals are met. Voluntary registration is possible for the rental of real estate, other than residential, for commercial purposes. The sale of a real property is exempt from VAT. The rental of restaurant facilities and gatherings is subject to VAT at the standard rate. The sale of fishing permits, for example in rivers and lakes, are exempt from VAT.
Minimum turnover. Exempt from the obligation to pay VAT are those who sell taxable goods and services for 1.000.000 ISK (2.000.0000 ISK as of January 1st, 2017) or less in each twelve-month period from the beginning of their business activity.
Various other services are exempt from VAT, e.g.
- healthcare and social services,
- operation of schools and education institutions,
- postal services,
- rental of parking spaces,
- insurance activities,
- banking and financial services,
- lotteries and betting pools,
- activities of authors and musical composers and comparable artistic activities,
- funeral services.
Standard rate, 24%
The standard rate of VAT in Iceland is 24%. Regarding tourism in Iceland it applies to sales of various goods and services such as:
- Car-rental as well as rental of other movable property, such as snowmobile rental and rental of ATV‘s (quad bikes), and horse-rental where the rental is in no case associated with organized trips under the guidance of a tour guide, cf. Transportation of passengers in next chapter.
- The rental of restaurant facilities.
- The sale of souvenirs and others goods and services subject to VAT.
- The services of self-employed bus drivers.
- The services of travel agencies and tour operators at intermediation on the sale or delivery of services which are VAT-taxable at the standard rate. The same applies to their sale in their own name of goods and services which are VAT-taxable at the standard rate.
Reduced rate, 11%
The reduced rate of VAT in Iceland is 11%. Regarding tourism it applies e.g. to the sales of following goods and services:
Rental of hotel- and guestrooms. The same applies to other accommodations for commercial purposes, i.e. accommodations in private homes, fishing lodges, cottages, camps and hostels of any kind, in case the rent period is less than one month.
Campground facilities. The same applies to the rental of parking spaces for mobile homes, trailers, campers and caravans whether rented for less than one month or not. Access to electricity, toilets and showers at a campground is considered part of the property service and is therefore subject to VAT at the reduced rate whether the service is included in the entrance fee for camping or sold separately to guests of the camp site. If access to electricity, toilets and shower etc. is in no connection with the entrance fee for camping it is subject to VAT at the standard rate.
Catering and sale of food. The same applies to the sale of other products for human consumption as defined in the addendum to the VAT Act.
Alcohol. The sale of alcohol and alcoholic beverages.
The services of travel agents, tour operators and touring associations on behalf of others and for their account with regards to the sale or delivery of services which are VAT-taxable at 11% rate or are exempt from VAT as listed in the chapter Exemptions.
Transportation of passengers whether by land, air or sea, including coaches and bus trips, e.g. organized trips for entertainment purposes under the guidance of a tour guide such as sightseeing tours, snowmobile tours, whale watching, horseback riding, sea angling etc. This includes the use of equipment by the passengers provided by the travel organizer for the trip such as snowmobiles, ATV‘s (quad bikes) as well as horses. This also applies to foreign bus companies which transport passengers commercially in Iceland. In the case of a package tour including travel to other countries, the VAT must be collected for the part of the journey that takes place in Iceland.
Please note that certain transportation of passengers, as listed in the chapter Exemptions, are exempt from VAT. Transportation of passengers to and from the country is considered granted abroad and such services are exempt from VAT (Zero-Rated).
Self-employed guides. The services of self-employed guides. This also applies to non-resident guides to the extent that their service is provided in Iceland.
Spas, sauna etc. Admission fees to spas, saunas, sanitariums and health facilities, which are not considered athletic activities.
Other sales of goods and services at the reduced rate are:
- Access to tunnels and other transport related constructions.
- Radio and TV subscription charges.
- The sale of books, musical notation as well as their audio recordings, compact discs and other similar media as well as electronic media.
- The sale of newspapers, magazines and district newspapers.
- The sale of CD‘s, recordings, magnetic tapes and other similar means of music recordings, other than visual recordings.
- The sale of condoms and reusable diapers.
Zero rated supplies
A zero-rated supply falls within the scope of the VAT Act, but no output VAT is charged since the rate is zero. The provisions of the VAT Act apply in full for such supplies, including the regulations relating to deductions for input VAT. Zero-rated activities in Iceland are as follows:
Export of goods and services. Communication services shall be seen as not being provided abroad if the purchaser is either domiciled or has operations in Iceland.
Transport of goods between countries and domestic transport of goods when the transport is a part of a contract for the transport of goods between countries.
The services of travel agencies and tour operators of goods or services that the traveler uses outside Iceland.
Transportation of passengers to and from the country.
Production of goods at a foreign party´s expense when the production company exports the goods upon completion, as well as the processing and formation of a good at a foreign party´s expense when the production takes place abroad.
The design, planning and other comparable services related to construction and other real property abroad.
Provisions, fuel, instruments and other equipment delivered for use on board of inter-country vessels, as well as the service provided to such vessels. This exemption does not cover pleasure boats or private aircraft.
The sale and leasing of aircraft and ships. This exemption does not cover boats less than six metres in length, pleasure boats or private aircraft.
Shipbuilding and repair- and maintenance work on ships and aircraft and their fixed equipment, as well as materials and goods used or provided by the company providing the repair work. This exemption does not cover boats less than six metres in length, pleasure boats or private aircraft.
Services provided to fishing vessels related to the landing or sale of fish catches in Iceland.
Contractual payments from the Treasury related to the production of milk and sheep farming.
A service of refunding VAT to parties domiciled abroad.
Sales of services to parties neither domiciled nor having a venue of operations in Iceland, provided that the services are wholly used abroad. A taxable service provided in connection with cultural activities, arts, sports, education and other similar activity taking place in Iceland, which are exempt from VAT, is always deemed as being used in Iceland. Sales of services to parties neither domiciled nor having a venue of operation in Iceland are, in the same manner, exempt from taxable turnover, even if the service is not wholly used abroad, provided the purchaser could, if its operations were subject to registry in Iceland, count the value added tax on the purchase of the services as part of the input tax.
The following services come under this point:
- The sale or lease of copyright, patent rights, registered trademarks and copyrighted designs and the sale or lease of other comparable rights.
- Advertising services.
- Services of consultants, engineers, lawyers, accountants and other similar specialized services as well as data processing and delivery of information, except for labour or services related to movable or real property in Iceland.
- Electronically supplied services: these services are considered used where the buyer is domiciled or has a venue of operations;
- Obligations and duties related to business or production activities or the use of rights listed under this point.
- Employment agency services.
- The rental of movable property, except for means of transport.
- Telecommunications services.
The services of agents acting on behalf of others and for their account with regards to the sale and delivery of services in the list above.
Sales of goods purchased or used solely for the purpose as listed in the chapter Input tax (purchases which may not be counted as part of the input tax) shall not be included in taxable turnover.
The commercial transfer of inventory, machinery and other operational assets shall not be included in taxable turnover when the transfer takes place in connection with a change in ownership of a company or a part thereof and the new owner is engaged in registered or registry-obligated operations according to the VAT Act. In the case of such a sale the seller shall notify the Director of Internal Revenue (RSK) of the transfer of ownership no later than eight days after the transfer.
The services of travel agencies and tour operators to the extent that their sales of goods and services use by travelers in Iceland are subject to VAT. This includes sales on behalf of others and for their account, commissions and transaction management business and sales of goods and services in Iceland in their own name. The tax liability also includes the travel agencies‘ commission for organizing the traveler‘s trip and for providing him with tickets, accommodation, food and other tourist related services.
Sales by travel agencies, tour operators and touring associations by tax rates are as follows:
Standard rate, 24%. The sale on behalf of others and for their account with regard to the sale or delivery of services which are VAT-taxable at the standard rate. The same applies to the sale of travel agencies and tour operators in their own name of goods and services which are VAT-taxable at the standard rate.
Reduced rate, 11%. The sale on behalf of others and for their account with regard to the sale or delivery of services which are VAT-taxable at 11% rate or are exempt from VAT. The same applies to their sale in their own name of goods and services which are VAT-taxable at the reduced rate.
Zero-rated supplies. The sales of goods or services used outside Iceland by the traveler are considered granted abroad and such services are exempt from VAT (Zero-Rated). The same applies to transportation of passengers to and from Iceland.
Exempt from VAT. The sale of travel agencies and tour operators in their own name of services which are exempt from VAT, for example the sale of fishing permits in rivers and lakes. However their sales are subject to VAT at the reduced rate to the extent that their sales are on behalf of others and for their account as regards the sale and delivery of services which are exempt from VAT.
General rules apply to the deduction of input tax, regardless of whether parties are domestic or foreign. The right to deductions for input tax applies to VAT on goods (both goods for supply and business assets) and services purchased for use in business activities which are liable to VAT. It is a precondition that the vendor has charged VAT on the goods or services that are purchased, and that the seller is registered for VAT on the date of transaction. VAT that cannot be verified by a sales invoice is not deductible as input tax.
The value added tax on purchases for the following may not be counted as input tax:
- The cafeteria or dining room for the taxable person and all food purchases, except for resale.
- The acquisition or operation of living quarters for the owner or staff.
- Perquisites for the owner and staff.
- The acquisition and operation of vacation homes, summer cottages, children's nurseries and similar objects for the owner and staff.
- Entertainment costs and gifts.
- The acquisition, operation and rental of passenger cars. The same shall apply to delivery and transport vehicles and off-road vehicles with a gross authorized weight of 5000 kg or less, which do not fulfill the requirements for capacity and length of cargo area set by the Minister of Finance and Economic Affairs.
All VAT-taxable persons in Iceland are obliged to complete a registration form and submit it to the Directorate of Internal Revenue (form RSK 5.02). Exempt from the obligation to pay VAT are those who sell labour and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity.
Foreign companies selling taxable goods and services in Iceland are liable for VAT according to the same rules and regulations as Icelandic companies and shall be registered for VAT if the conditions for registration are met. Registration of a foreign company in the VAT register carries the same rights and obligations as registration of an Icelandic company. For example, foreign companies involved in commercial transportation in Iceland must register for VAT, charge and deliver VAT to the extent that their activities are VAT-related.
If a foreign company selling taxable services in Iceland does not have a permanent establishment in Iceland, it must entrust an agent domiciled in Iceland to serve as its representative, including sending notification of its activities to the RSK, collecting VAT on taxable services and remitting it to the Treasury. The foreign taxable company and its representative are both responsible for the collection and payment of VAT. It is not necessary for the payment from an Icelandic customer to be made through the foreign company's representative in Iceland. Payment may be made directly to the foreign business.
The representative shall keep complete VAT accounts for the foreign company's supply in Iceland (both purchases and sales), and is obliged to keep these accounts, sales documents, vouchers etc. in Iceland for at least seven years after the end of the accounting year in question. Foreign companies that only supply goods and services from abroad to recipients in Iceland, excluding electronically supplied services, are not liable for VAT in Iceland. However, the importation of goods is taxable and VAT is payable at the time of importation by the owner of the goods
Foreign travel agencies. A foreign travel agency, tour operator and travel organizer that has an operation, branch or an agent in Iceland is required to register for VAT in Iceland and submit VAT reports accordingly. The scope of the VAT requirement covers tours or services that take place in Iceland. Foreign busses and rental cars that are operated in Iceland by a foreign company are considered to be an established operation and thus fall under the scope of the VAT obligation.
A foreign travel agency or tour operator that does not have an operation in Iceland is exempt from the requirement to register for VAT in Iceland, e.g. foreign travel agency who buys a travel package from another travel agency resident abroad and resells it to another travel agency or to a traveler abroad.
Certificate of registration
The company will receive a certificate of registration with the VAT registration number from RSK. Electronic filing of VAT statements is mandatory and once the company has been registered it will also receive a special password in a separate letter to manage their VAT affairs electronically. The VAT registration number and the password are the company's login information used to declare VAT electronically. Payment is possible through online banking once the VAT statement has been filed.
Changes to the registered person‘s operations after registration must be notified to RSK no later than eight days after the change, e.g. if a company starts a different activity or it ceases operations subject to VAT.
VAT statement and payment obligations
Taxable persons are obliged to file an electronic statement and pay VAT after each settlement period. Information about the VAT statement and required information, settlement periods, due date, payment methods etc. can be found in this chapter.
VAT settlement period
In general each VAT reporting period is two months, January/February, March/April, May/June, July/August, September/October and November/December. VAT payment together with a VAT statement must be submitted no later than the due date for payment which is one month and five days after the period has ended. For example the due date for the January/February payments is 5th of April. If the due date falls on a weekend or public holiday the next business day is the due date.
Other VAT settlement periods
Annually, i.e. if sales during the calendar year are less than 3.000.000 ISK (4.000.000 ISK as of January 1st 2017), due date is 5th of February.
Six months (Agriculture), due dates are 1st of September, for the period January – June, and 1st of March, for the period July-December.
Monthly if input tax is generally higher than output tax because a major portion of the turnover is exempt. The same applies to companies selling goods and services at the reduced rate as the majority of their inputs into such production or as intermediate inputs are subject to the VAT at the standard rate. Application for a shorter settlement period must be filed at least one month before the beginning of the next period. Due date is one month and five days after the period has ended.
The VAT statement
Electronic filing of VAT statements is mandatory even if no sales have been made in the relevant period. A few days before the due date RSK sends an e-mail reminder of the upcoming due date of VAT. If a VAT statement is not filed for the period RSK will estimate sales and output tax. An additional surcharge of 5.000 ISK will be added when a VAT statement has been filed instead of an estimate.
Filing a VAT statement and paying VAT
The VAT statement is filed online at www.skattur.is. Login information is the Icelandic Id. no. (kennitala) and a password, issued by RSK. Required information are total value of goods and services sold (excluding VAT) in each tax rate, and sales subject to the zero rate. Information on total output and input tax are also required. Payment is possible through online banking once the VAT statement has been filed.
Those who do not have an access to online banking in Iceland can pay from a foreign bank account. In that case it is necessary to use the following IBAN and SWIFT code. It is important to state the VAT registration number, year and period in the comments field:
Payment of VAT from a foreign bank account to the Financial Management Authority:
Central Bank of Iceland (Seðlabanki Íslands)
IBAN: IS48 0001 2602 5203 5402 6964 59
Financial Management Authority (Fjársýsla ríkisins)
Additional tax and penalties
Late payments of VAT are subject to 1% penalty charge for each day past due date up to a total of 10% (no minimum penalty is stipulated). Tax authorities may, if the company shows sufficient cause, cancel the penalty.
An additional penalty is applied if the VAT is not remitted within a month from the due date. This additional penalty is in the form of late payment interest as determined by the Central Bank of Iceland (Seðlabanki Íslands).
An additional surcharge of 5.000 ISK will also be added when a VAT statement has been filed instead of an estimate.
Foreign companies selling taxable services in Iceland may also be liable for withholding tax of employees‘ wages, lodging tax and to keep accounts for their business in Iceland according to the Icelandic regulations.
Lodging tax is 100 ISK of each unit sold (will be 300 IKR from September 1st 2017). Unit is the rental of accommodation for up to one day, including overnight stay. Lodging means houses or area that are rented out for the purpose of staying overnight, e.g. apartments and rooms, including rooms in hotels, guesthouses, motels, camping and caravan sites, where sleeping area is available or can be established, and the renting time is generally less than one month.
Lodging tax must be specified on invoices or receipts, and it forms a base for VAT.
Lodging tax shall not be imposed on the sales of overnight accommodation that are not subject to VAT, e.g. sales of parties with turnover less than 2.000.000 ISK in any twelve month period.
Employers are required to collect withholding tax of wages of employees and also of their own remuneration and pay to the collector of the Treasury.
Accounting and invoicing
All taxable persons, including foreign companies selling taxable goods and services in Iceland, shall keep accounts for their business activities in Iceland and shall arrange their accounts and their settlement in such a manner that tax authorities can verify VAT statements at any given time. The VAT accounts shall be accessible to the tax authorities at all times.
Invoices must be issued with every sale or delivery of goods or taxable service, except cf. Art. 21 of the VAT Act. The invoice must include a date of issue, name and Icelandic Id. no. (kennitala) of the purchaser and seller, VAT number of the seller, type of sale, quantity, unit price and total price. Type of sale to a registered person must be sufficiently clear, so that it can be deduced whether the transaction concerned is VAT-taxable activity. Invoice forms shall be numbered in advance in consecutive numerical order. The invoice shall state clearly whether the VAT tax is included in its sum total or not. Furthermore, the amount of the VAT tax shall be stated separately, or that the VAT tax amounts to 19.35% (standard rate) of the total price, or 9.91% (reduced rate). The amount of the VAT tax must always appear in the case of a sale by a taxable party.
Parties exempt from VAT may neither specify on their invoices nor indicate in any other manner thereon that VAT is included in the invoice amount.
Value added tax on Electronic Services (VOES)
A foreign company, which supplies electronically supplied services to non-taxable persons (B2C) in Iceland, where the value of those sales exceed a threshold of 2.000.000 ISK in any twelve-month period, is required to register and account for VAT in Iceland. Registration is not required when the buyer is registered according to Art. 5 of the VAT Act and can account for the VAT on the electronically supplied services as part of the input tax (B2B).
Electronic services include download or streaming of software, apps for smartphones, e-books, electronic games, music, movies or television programs. The services are always regarded as used where the buyer of the services resides or has a place of business.