Statutory Rates & Law Act No. 50/1988 2026 Fiscal Year

VAT Rates in Iceland: 24%, 11%, and Exemptions Explained (2026 Guide)

Comprehensive statutory guide to Icelandic Value Added Tax: The standard 24% rate, the 11% reduced rate for food and lodging, zero-rated exports, and statutory exemptions under Act No. 50/1988.

Author: Icelandic Tax & Customs Editorial Board Jurisdiction: Iceland (Skatturinn) Reading Time: 11 min read

Iceland VAT Rates Quick Reference

  • 24% Standard Rate: Applies to all retail goods, vehicles, fuel, IT services, and building works.
  • 11% Reduced Rate: Covers foodstuffs, restaurant catering, hotel lodging, books, and geothermal heating.
  • 0% Export Supplies: Taxable at 0% with 100% full input VAT deduction entitlements.
  • Article 2 Exemptions: Healthcare, financial services, and residential property leasing.

1. Standard 24% VAT Rate in Iceland

The standard rate of Value Added Tax in Iceland is 24%, enacted under Article 8, Paragraph 1 of Act No. 50/1988. This rate applies broadly to all commercial sales, services, and importations unless explicitly assigned to the reduced 11% rate or classified as exempt. Learn the mathematical formulas to calculate these rates in our guide on How to Calculate VAT in Iceland.

Category VAT Rate Scope & Practical Notes
Commercial Goods & Electronics 24% All retail electronics, clothing, vehicles, machinery, and luxury merchandise.
Professional & Legal Services 24% Legal consultancy, IT programming, marketing, auditing, engineering, craftsmanship.
Foodstuffs & Catering 11% All human foodstuffs, restaurant dining, take-away, bakery goods (excluding alcohol).
Hotel & Lodging Accommodation 11% Hotels, guesthouses, Airbnb rentals, campsites, and commercial hostels.
Exported Goods & Services 0% Zero-rated export sales with 100% full input VAT recovery entitlement.

2. The 11% Reduced VAT Rate: Food, Tourism & Energy

Under Article 8, Paragraph 2 of the VAT Act, the 11% reduced rate is specifically designated for human essentials and tourism stimulation. This applies to groceries, restaurant meals, tourist accommodations, domestic heating, and geothermal energy supplies. See our specialized industry breakdown on VAT in Tourism, Lodging & Transport.

3. Zero-Rated Supplies vs. Exempt Supplies (Article 2 vs Article 12)

In the Icelandic system, a vital legal distinction exists between 0% taxable sales (Article 12) and exempt sales (Article 2):

  • 0% Rate (Zero-Rated with Input Deduction): Export of goods and services, international passenger transport, repairs on foreign aircraft/ships. The vendor charges 0% VAT but recovers 100% of input VAT paid on operational purchases.
  • Exempt (Without Input Deduction): Health care, dental surgery, state education, bank and financial services, residential letting, and postal services. The vendor does not charge VAT and cannot recover any input VAT on related costs.

Multi-Rate Invoice Tax Splitter

Calculate the total VAT due on an invoice containing mixed items taxed at 24% and 11%.

VAT @ 24%: 36,000 ISK
VAT @ 11%: 8,800 ISK
Total Gross Invoice: 274,800 ISK

Frequently Asked Questions (Algengar Spurningar)

❓ Can tourists get a refund on 11% items?
Yes. The minimum single-receipt spending threshold is 12,000 ISK (gross), covering goods purchased in retail stores. Calculate your net cash refund on our Tourist VAT Refund Calculator.
❓ Are second-hand goods taxed at 24% or 11%?
Standard second-hand goods are subject to the 24% rate, applied either to the full sales price or under the special margin scheme (profit margin only).
❓ What VAT rate applies to foreign digital services?
B2C electronic services supplied to Icelandic non-taxable residents are subject to the standard 24% Icelandic VAT.
Statutory Disclaimer & Verification: This guide is compiled based on statutory provisions under Act No. 50/1988 and administrative rulings of the Directorate of Internal Revenue (Skatturinn).