Personal tax credit and taxes for individuals living abroad

Students abroad

Students who move their legal domicile while studying abroad are advised to use their personal tax credit only for the days they reside in Iceland.

They must inform their employer of the date of arrival in Iceland and emphasize that the personal tax credit may only be used from that date.

On Skatturinn's service portal, you can obtain a document with the status your personal tax credit, which many employers request. However, the document does not give an accurate picture of entitlement to accumulated personal tax credit for individuals who have lived abroad during the year.

The document is based on the assumption the personal tax credit has accumulated from the beginning of the year, which is not the case for individuals living abroad.

In the tax return filed the following year, students may apply to retain tax residence in Iceland despite living abroad. If the application is approved, the personal tax credit is granted for the entire study period during the income year, not only for the time spent in Iceland.

Personal tax credit for pension payments and parental leave

Individuals who are resident abroad but receive payments from Iceland may be entitled to personal tax credit in Iceland. This depends on whether a double taxation agreement has been concluded with the country of residence and on the provisions of that agreement.

This may apply to payments such as:

Einstaklingar sem búsettir eru erlendis en fá greiðslur frá Íslandi geta átt rétt á persónuafslætti hér. Það veltur á því hvort gerður hefur verið tvísköttunarsamningur við ríkið sem viðkomandi býr í og þá hvað samningurinn kveður á um.

• Pension payments (from the Social Insurance Administration and pension funds)

• Disability pensions

• Parental leave benefits

• Unemployment benefits

Individuals who are resident in another Nordic country pay full income tax and municipal tax in Iceland on pensions or pension payments received from Iceland. Personal tax credit is applied against such payments.

The same applies to individuals who are resident in a country that does not have a double taxation agreement with Iceland.

Individuals who are resident, for example, in Poland or Spain may apply for an exemption from paying income tax and municipal tax on pensions, pension payments, or social security benefits received from Iceland.

In other respects, the provisions of double taxation agreements apply if an individual is resident in a country that has concluded such an agreement with Iceland.

Income fully taxable abroad

If a double taxation agreement provides that wage or pension income from Iceland is taxable in the country of residence, you may apply for an exemption from withholding tax in Iceland using form RSK 5.49.