Do you live in another Nordic country and intend to work as a self-employed person in Iceland?
This information concerns individuals who live in another Nordic country and intend to work as a self-employed person in Iceland. The information only pertains to the taxation of income from such operations.
Registration in Iceland
When you start operating as a self-employed person in Iceland you must have a social security number. You are assigned a social security number at the National Registry (www.skra.is).
You might be required to register for VAT as well as in the Employers' Register.
Whether or not you must pay taxes in Iceland as a foreign self-employed person depends on whether your permanent establishment is located in Iceland or not.
Definition of the term "permanent establishment" according to the Double Taxation Agreement between the Nordic countries can be found in the chapter "General info/Permanent establishment."
Only the part of the income from your operations that has its source at the permanent establishment in Iceland will be taxed in Iceland. Tax is levied on the income according to Icelandic tax law. According to Icelandic law, you are required to file a tax return, as well as an operating summary, no later than May 31st the year following the income year.
Permanent establishment not located in Iceland
The operation is not liable for tax in Iceland if the permanent establishment is not located in Iceland.
There are specific rules regarding where you are required to be insured. You must contact the institution dealing with social security in your home country, or the National Insurance Administration (tr.is) in Iceland, for further information on those rules.
Payments and information regarding employees
If you have a permanent establishment located in Iceland, and employ salaried staff at this establishment, you are required to register as an employer. You must withhold tax from the employees' salary in accordance with tax rules regarding employees.
If you do not have a permanent establishment located in Iceland, you must not withhold tax from the employees' salary. Under such conditions, the employees are themselves responsible for paying tax from their salary.
If the employees are insured according to laws on social security in another country, then you are not liable for payroll tax on their account in Iceland, but required to pay a similar tax/fee in the other country. It must be possible to prove that the employees are insured in the other country's social security system.
On the other hand, you are liable for payroll tax in Iceland if the employees are insured according to the Icelandic social security system. The rules concerning social security are within the jurisdiction of the Social Insurance Administration in Iceland (tr.is).
Duty to supply information
If you have a permanent establishment located in Iceland, and employ salaried staff at this establishment, you are required to report your operations and file a monthly report for salary paid, tax withheld at source etc., for each and every employee (forms RSK 5.06, RSK 5.12).
Value added tax (VAT)
Operations in Iceland providing VAT-liable products and service in Iceland are required to be registered for Icelandic VAT.
Disregarded of whether or not the foreign business has a permanent establishment located in Iceland, it must be registered with the Directorate of Internal Revenues.