Capital Income and Capital Income Tax
Capital income is income derived from assets or investments. It is subject to capital income tax, which is either withheld when the income is paid or assessed following the processing of the annual tax return.
Capital income is not subject to municipal income tax and does not affect the income tax bracket that applies to your earned income. However, it is included together with other income when calculating child benefits.
The capital income tax rate is 22%.
For certain types of capital income, a tax-free threshold applies. Capital income tax is therefore payable only on the amount exceeding 300.000 ISKper year for individuals and 600.000 ISKper year for married couples and jointly assessed cohabiting partners.
When capital income tax is withheld at source, for example on interest paid on a bank deposit, the following applies:
Each time the bank pays interest, 22% capital income tax is withheld and remitted.
After you submit your tax return, all of your capital income for the year is compared with the tax-free threshold.
When your tax assessment is issued (following the processing of your tax return), any excess tax withheld is refunded, so that you ultimately pay tax only on the amount of interest income exceeding the tax-free threshold.
The capital income tax-free threshold is shared across interest income, dividends, and capital gains from the sale of shares in companies listed on a regulated market or a multilateral trading facility (MTF).
Types of Capital Income
The main categories of capital income and the rules governing their taxation are:
Payment of Capital Income Tax
In general, capital income tax on interest and dividends is withheld at source when the income is paid. The payer, for example a bank, is responsible for calculating the tax and remitting it to the Treasury.
For capital gains and rental income, capital income tax is assessed following the processing of the annual tax return. The same applies where capital income tax on interest or dividends has not been withheld at source, for example in the case of foreign interest income.
Where applicable, the shared capital income tax-free threshold is taken into account when the annual tax assessment is made.
Tax Return
Individuals are responsible for ensuring that their capital income is correctly reported in their tax return.
Most capital income is pre-filled, but you should review the information carefully and add any income that has not been pre-filled.
Service provider
Skatturinn - Iceland Revenue and Customs