8. Rates
The state income tax withholding rate for 2008 is 22,75% and the local income tax rate is 12,97%. The income tax is paid as the income is earned and withheld at source by the employer. A monthly tax deduction of ISK 34.034 is allowed.
For the 2008 income year, tax rates for resident individuals are:
Taxable income
| Over |
Not Over |
Percentages on Excess |
| ISK 0 |
ISK 1.191.000 |
0% |
|
| ISK 1.191.000 |
|
35,72% |
|
|
|
|
|
Investment income earned by individuals, such as interest, dividends and capital gains (see item 10) is subject to a financial income tax at the rate of 10%.
Seamen receive an additional tax deduction, amounting to ISK 874 per day spent at sea.
An employee’s contribution to a pension fund 4-8% is deductible from taxable income.
The monthly deduction of ISK 34.034 is transferable between married couples and people in common-law marriage.
9. Local Income Taxes
Local municipal taxes are withheld at source along with the state income taxes (see item 8). They can vary from 12,10% to 13,03% between municipalities. An average figure is used for the purpose of calculating withholding tax. For 2008 the average rate is 12,97%. After the income tax year, the tax authorities assess the appropriate local tax rate for each individual, who then either is entitled to a refund or pays the difference to the tax authorities.
10. Capital Gains Taxes
Capital gains from the sale of homes are not taxed if the homes were owned for more than 2 years.
Capital gains derived from the sale of shares are taxed at the rate of 10%.
Capital gains for the sale of liquid assets, which does not represent a business income and is not obtained merely to sell with profit, is tax-free for individuals.
11. Foreign Tax Relief
Relief from double taxation is granted either in accordance with tax treaties or on the basis of domestic credit rules.
12. Tax Period
The tax period for individuals is the calendar year.
