Tax deduction for foreign experts

Foreign experts working in Iceland may be eligible for tax incentives on their wages if they have required expertise and have relocated to Iceland for work. Employees who meet the defined conditions can apply for 25% of their salary to be exempt from taxation for the first three years of employment.

Conditions

An employee qualifies as a foreign expert if the following conditions are met:

• The individual has not been resident or domiciled in Iceland during the 60 months prior to the start of employment (the first three months of stay in Iceland are not counted)

• The individual possesses expertise that is not available in Iceland, or only to a limited extent

The scheme only applies if the foreign expert:

• Is employed by a legal entity with domicile or a permanent establishment in Iceland, and is paid as an expert by that entity

• Is hired to perform work requiring specialized knowledge and experience that is not available in Iceland, or only to a limited extent

• Works in research, development and/or innovation, teaching, or on specialized projects or

• Performs project management, construction management, or other key roles essential to the company’s operations

Once an application has been approved, the expert pays income tax on 75% of their income for the first three years of employment, both for withholding tax and final assessment.

Wage-related charges, as well as child benefits and interest relief, are based on total gross salary.

Correction of withholding tax

Employers are not permitted to apply the tax relief until the application has been formally approved. Until then, the employer must withhold full tax from wages.

Once the application has been approved, it is possible to apply for a correction of withholding tax for the period from when the specialist started working in Iceland until the approval was granted.