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Limited tax liability

Temporary residence - less than 183 days

Those not domiciled in Iceland but coming to the country temporarily to work, i.e., for less than 6 months of a 12-month period, have limited tax liability for income earned while in Iceland. "Income" means wages, job-related payments, perquisites, etc. The right to deductions from this income is the same as for those with full tax liability, i.e., a deduction for contributions to a pension fund of 4% of total income and an additional contribution to a personal pension fund of up to 4% of total income.

Tax assessment takes into account the personal exemption, but neither family allowance nor interest allowance is calculated for those with limited tax liability. Individuals pay 24,1% national income tax and 13,1% municipal income tax.

A tax return shall be submitted during the period allowed, but those arriving and departing during the calendar year must submit a tax return no later than one week before departure.

Wages from Iceland

Those not domiciled in Iceland, but who earn wages there, also have limited tax liability. They pay 15% national income tax on these wages and municipal income tax at the withholding rate, 13,1%. They have no personal exemption. Withholding from this income is payment in full, and they do not have to submit a tax return in Iceland.

Those receiving a pension or annuity from Iceland have limited tax liability for this. They pay 24,1% national income tax and 13,1% municipal income tax and have a personal exemption deductible from this income. The withholding is payment in full, and they do not have to submit a tax return in Iceland because of this income.

Assets in Iceland

Those who are not domiciled in Iceland but own assets there have limited tax liability because of income they get from these assets. They pay 10% capital income tax on gross rental income and sales proceeds. They must submit a tax return because of these assets in Iceland. They do not pay net worth tax because of these assets after 2005, but the municipalities collect real-estate taxes on these assets.

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