Virðisaukaskattur

Virðisaukaskattur, or value-added tax (VAT), is Iceland’s consumption tax levied on most goods and services sold within the country. The tax is administered by the Icelandic Tax Administration, known as Skatturinn. In principle, VAT is borne by final consumers, while businesses collect output tax on taxable supplies and remit it to the tax authorities. Businesses registered for VAT may deduct the VAT paid on inputs used to make taxable supplies, offsetting it against their output tax.

The standard VAT rate in Iceland is 24 percent. A reduced rate of 11 percent applies to a specified subset of goods and services, such as certain foods, beverages, and accommodation services. Some supplies are exempt from VAT, meaning no VAT is charged and input VAT cannot be reclaimed; exports and certain financial, medical, or educational services fall under this category, depending on the rules. In practice, VAT is charged at the point of sale on taxable goods and services, and the price shown to consumers is often VAT-inclusive.

For cross-border transactions, exports are typically treated as zero-rated or exempt, and certain cross-border services may be subject to special VAT rules or reverse charge mechanisms. Registration for VAT is required for businesses that make taxable supplies and meet the applicable turnover threshold. The system is designed to be neutral for business decisions, placing the ultimate tax burden on the end consumer while allowing businesses to reclaim VAT paid on related purchases.