Iceland Tourism Business Guide 2026
Iceland's tourism sector is a major part of the economy. Businesses must navigate VAT at 24% (standard) and 11% (reduced for hotels, transport, and food), seasonal staffing rules, and specific hospitality regulations.
VAT for Tourism Businesses
- 11% reduced rate — hotel accommodation, guesthouses, restaurant meals, domestic passenger transport (flights, buses, ferries), tour guiding services
- 24% standard rate — car rentals, souvenir shops, alcohol, luxury services, travel agency commissions
- 0% — international transport, exports of goods
Registration Threshold
Tourism businesses must register for VAT if turnover exceeds ISK 2,000,000 in any 12-month period. Hotels and larger tour operators typically exceed this threshold quickly.
Tax-Free Shopping for Tourists
Iceland operates a Tax-Free Shopping scheme for non-EEA tourists. Visitors can claim a refund of VAT on goods exported from Iceland (minimum purchase ISK 6,000 per receipt). The refund is processed at departure points.
Tour Operators and Travel Agencies
Tour operators selling package holidays must account for VAT on their margin (tour operator margin scheme). Inbound tour operators (selling to foreign clients) may apply 0% VAT on services directly related to export.
Seasonal Business Considerations
- Seasonal VAT registration: Businesses operating only part of the year can register and deregister for VAT seasonally
- Seasonal employees: Employers must register all staff, even short-term seasonal workers, with RSK and pension funds
- Winter vs summer rates: Some hotels offer significantly lower winter rates; the VAT treatment (11%) does not change
Hospitality Regulations
Restaurants, bars, and hotels must comply with the Food and Veterinary Authority (MAST) regulations. Accommodation providers must register with the Icelandic Tourist Board.
Payroll for Tourism Staff
Tourism employers must pay:
- Tryggingagjald: 7.59% social security tax
- Occupational pension: ~4% employer contribution
- Minimum wages are set by collective bargaining agreements (general wage agreements)
Depreciation of Tourism Assets
Hotel buildings, vehicles, and equipment used in tourism can be depreciated at standard rates (buildings 2%, vehicles 20%, equipment 15–30% declining balance).