Quick answer: Iceland has two VAT rates: a standard rate of 24%, which applies to most goods and services, and a reduced rate of 11%, which applies to specific categories like accommodation, foodstuffs, books, and heating. Exports and certain international supplies are zero-rated (0%, with input VAT still recoverable), while a separate list of activities — including healthcare, education, financial services, and alcohol sales — is fully exempt from VAT (with no input VAT recovery at all).
Standard rate: 24%
The 24% standard rate applies to any taxable supply that isn't specifically listed under the reduced rate, zero rate, or exemption categories below. This covers most retail goods, most services, electronics, car rentals, and general merchandise.
Reduced rate: 11%
The following are taxed at the reduced 11% rate, based on Skatturinn's own published categories:
- Rental of hotel and guest rooms, and other commercial accommodation (private homes, fishing lodges, cottages, camps, hostels) when the rental period is under one month
- Campground facilities, including electricity, toilets, and showers provided at the campsite
- Tourist and leisure passenger transport — whale watching, snowmobile tours, horseback riding, sightseeing coach and bus trips, sea angling, and similar guided/organized trips
- Travel agency and tour operator services for the portion of a trip used in Iceland
- Radio and television subscriptions
- Newspapers, periodicals, and magazines
- Books (Icelandic and translated), musical notation, and their audio recordings, including CDs and electronic/digital versions
- Geothermal hot water, electricity, and fuel oil used for heating houses and swimming pools
- Foodstuffs, generally
Zero-rated (0%)
Zero-rated supplies are taxed at 0% but still allow the seller to recover input VAT on related costs — this is the key financial difference from an exemption. This category mainly covers exported goods and services, and certain international transport and supply situations.
Exempt from VAT entirely
These activities are not subject to VAT at all, and businesses making exempt supplies generally cannot recover input VAT on costs related to them:
- Healthcare services and social services
- Operation of schools and education services
- Cultural activities, libraries, and museums
- Athletic activities — including rental of athletic facilities, admission to swimming pools, ski lifts, athletic events, and health facilities
- Public transport on a regular, published-schedule domestic route (by land, air, or sea) — as well as taxis, medical transport, and organized transport for disabled people, schoolchildren, and the elderly
- Postal services
- Sale of real estate (not including hotel/guest accommodation rental)
- Rental of car parking lots
- Insurance activities
- Financial and banking services, and securities trading
- Lotteries and betting pools
- Sale of art directly by the artist (or at auction), for specific customs-classified artworks
- Funeral services and services of church ministers
- Sale of alcohol and alcoholic beverages
Why alcohol and transport trip people up
Two categories cause the most confusion, so they're worth stating explicitly:
Alcohol: the sale of alcohol and alcoholic beverages is VAT-exempt, not reduced-rate. Alcohol is instead taxed through a separate alcohol excise tax system. Some non-official sources describe alcohol as taxed at 11% alongside other food items — this does not match Skatturinn's own published guidance, and the exemption treatment should be treated as authoritative.
Passenger transport: this splits into two different treatments depending on the type of trip. A regular scheduled bus, ferry, or domestic flight on a published route is exempt. A guided tourist experience — a whale-watching boat, a snowmobile tour, a sightseeing coach — is taxed at the reduced 11% rate. Same broad activity ("transport"), two different VAT outcomes depending on whether it's scheduled public transit or an organized leisure trip.
Quick reference table
| Category | Rate |
|---|---|
| Most goods and services | 24% |
| Hotel/guest accommodation, food, books, heating | 11% |
| Tourist/leisure passenger transport (whale watching, etc.) | 11% |
| Exports | 0% (zero-rated, input VAT recoverable) |
| Scheduled public transport, healthcare, education, financial services, alcohol | Exempt (no input VAT recovery) |
Common mistakes
- Assuming alcohol is taxed at 11% like other food. It's exempt, not reduced-rate — a separate excise tax applies instead.
- Charging 11% on all passenger transport. Scheduled, regular-route transport is exempt; only organized tourist/leisure transport is 11%.
- Treating "exempt" and "zero-rated" as the same thing. Only zero-rated sellers can recover input VAT; exempt sellers cannot.
Important / Heimild og fyrirvari
VSK.is is an independent informational resource and is not affiliated with Skatturinn or any Icelandic government body. VAT rate categories and exemptions can change. Always verify current classifications directly with Skatturinn before pricing a product or service.
Frequently Asked Questions
Neither — the sale of alcohol and alcoholic beverages is exempt from VAT entirely. Alcohol is instead taxed through a separate excise alcohol tax.
Regular, scheduled public transport (buses, domestic flights, ferries on a published route) is exempt. Organized tourist or leisure passenger transport, like whale watching or snowmobile tours, is taxed at the 11% reduced rate.
Foodstuffs are generally taxed at the reduced 11% rate.
A zero-rated seller charges 0% VAT but can still recover input VAT on related costs. An exempt seller charges no VAT and cannot recover input VAT at all, which becomes a real cost to the business.
No, financial and banking services, securities trading, and insurance activities are exempt from VAT.
Important / Heimild og fyrirvari
VSK.is is an independent informational resource and is not affiliated with Skatturinn or any Icelandic government body. This article distinguishes what we could verify from Icelandic legislative sources (the charity exemption, out-of-scope private sales) from what remains an open question (a possible margin scheme for commercial resellers). Always confirm your specific situation with Skatturinn or a qualified Icelandic tax advisor before making a VAT decision.