virðisaukaskatt

Virðisaukaskattur, commonly translated as value-added tax (VAT), is the main consumption tax used in Iceland. It is levied on most goods and services consumed in the country and on many imports, with the final tax burden borne by the end consumer.

The tax operates through a credit mechanism: businesses charge VAT on their sales, collect it from customers, and pass on the net amount to the Icelandic tax authority after deducting VAT paid on purchases and other inputs. This input tax credit system aims to tax the value added at each stage of production and distribution rather than the full price at a single point.

Taxable supplies include most domestic sales and imports. Some goods and services are exempt or subject to reduced rates, and exports are typically zero-rated, meaning no VAT is charged on those shipments. The exact rate structure and exemptions can be amended by the authorities and parliament.

Administration and compliance are handled by Skatturinn, the Icelandic Tax Administration. Businesses required to register must file periodic VAT returns and remit the net VAT due. They are also expected to maintain records and comply with reporting and documentation requirements. Penalties and audits can apply for late filings, inaccuracies, or non-compliance.

Overall, virðisaukaskattur serves as a significant source of government revenue and aligns with international VAT practices, particularly within the broader European Economic Area framework. It aims to be neutral with respect to business operations by allowing deductions for input VAT.