Iceland Cross-Border Tax Guide 2026
Iceland's cross-border tax rules cover withholding taxes on outbound payments, double tax treaties, transfer pricing, and controlled foreign company (CFC) rules.
Withholding Taxes (WHT)
- Dividends: 22% (reduced under DTTs, often to 5–15%)
- Interest: 22% (0% for resident individuals on bank interest; reduced under DTTs)
- Royalties: 20% (reduced to 10–15% under most DTTs; 0% for certain software royalties)
Double Tax Treaties (DTTs)
Iceland has over 45 DTTs in force, including with:
- All Nordic countries (Denmark, Faroe Islands, Finland, Norway, Sweden)
- Major EU countries (Germany, France, UK, Netherlands, Luxembourg)
- United States, Canada
- China, India, Japan, South Korea
- UAE, Saudi Arabia, Qatar
Transfer Pricing
Iceland follows OECD Transfer Pricing Guidelines. Related-party transactions must be at arm's length. Documentation requirements apply when:
- Related-party transactions exceed ISK 100 million annually
- The company is part of a multinational group with turnover exceeding ISK 1 billion
Controlled Foreign Company (CFC) Rules
Iceland has CFC rules that may attribute passive income of a foreign subsidiary to the Icelandic parent company if the foreign entity is subject to less than half the Icelandic CIT rate (i.e., effective tax rate below ~10%).
Permanent Establishment (PE)
A foreign company creates a PE in Iceland if it has a fixed place of business or a dependent agent concluding contracts in Iceland. PE profits are taxed at 20% CIT.
Inbound Investment
Foreign investors face no special restrictions (except limited sectors like energy and natural resources). WHT on outbound dividends and interest may apply subject to DTT reductions.
Expatriate Tax Rules
Expatriates working in Iceland are generally taxed as residents after 183 days. Special tax equalization arrangements are common for short-term assignments. Foreign-source income may be exempt if the individual is not tax resident.