Income taxes for individuals

8. Rates

The state income tax withholding rate for 2009 is 24,10% and the local income tax rate is 13,10%. The income tax is paid as the income is earned and withheld at source by the employer. A monthly tax deduction of ISK 42.206 is allowed.

For the 2009 income year, tax rates for resident individuals are:

Taxable income

deduction of ISK 42.206 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 11,24% to 13,28% between municipalities. An average figure is used for the purpose of calculating withholding tax. For 2009 the average rate is 13,10%. 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

Investment income, earned by individuals, such as interests, dividends and capital gains, is subject to financial income tax at the rate of 10% if earned in the period January 1st – June 30th 2009, and 15% if earned in the period July 1st – December 31st 2009. However, if the investment income is below ISK 250.000 for individuals and ISK 500.000 for couples the tax rate is 10% (so the first 250.000 for individuals/500.000 for couples are free from the 5% extra tax charge). Rental income wil continue to be subject to 10% capital gains tax with no extra 5% charge.

Capital gains from the sale of homes are not taxed if the homes were owned for more than 2 years.

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.