Per diem payments for travel
Per diem payments are paid to employees for work-related travel and replace reimbursement of actual expenses. They are intended to cover costs incurred while the employee is away from home, for example accommodation and meals.
For tax purposes, expenses may be deducted from per diem payments if all of the following conditions are met:
The per diem payments were paid for occasional travel on behalf of the employer.
The payments were made for travel outside the employee’s regular workplace.
The employee can provide receipts showing that travel-related expenses were incurred.
The employer’s and the employee’s records contain information about the purpose of the trip, the number of days away, the amount of travel or per diem payments, as well as the employee’s name and identification number.
Maximum limits apply to the tax treatment of per diem payments. These limits are based on decisions by the State Travel Cost Committee regarding per diem payments for government employees and apply to all employees regardless of their employer.
If per diem payments exceed the applicable limits, tax must be paid on the excess amount.
Rules on the maximum deductible amounts from per diem payments are published in the annual tax assessment guidelines and may change following decisions by the State Travel Cost Committee. An overview of the applicable amounts is provided below, although the amounts may change during the year. For payments abroad, the SDR exchange rate is used, which can be found in the exchange rate listings of the Central Bank of Iceland.
When can expenses be deducted from per diem payments?
If an employee is hired to work at a specific location, that location is considered their regular workplace, even if it is far from their home or from the employer’s main place of business. In such cases, the rules on deducting expenses from per diem payments generally do not apply.
If travel is a regular part of the job, for example when the work involves transporting goods across the country, expenses cannot be deducted from per diem payments.
Temporary work abroad
General rules on deducting expenses from per diem payments for travel do not apply if an employee works temporarily abroad for an Icelandic employer. For example, the employee does not need to submit receipts for meal expenses.
Instead, the following may be deducted from specified maintenance payments:
up to 30 SDR per day
for a maximum period of one year
Short visits to Iceland during this period do not affect these rules.
Amounts
Further information
Rules of the Director of Internal Revenue on benefits and deductions: Tax assessment guidelines (Icelandic)
Rules of the State Travel Cost Committee (Icelandic)
Legal provision on the maximum deduction from per diem payments (Act No. 90/2003)
Service provider
Skatturinn - Iceland Revenue and Customs