In Iceland,like in most contries, there is a tax on all earned income and in some instances VAT (value added taxes)must be paid.

In Iceland, as elsewhere in the world, all salaries and other payments received for goods and services rendered are tax deductible, and depending on the total amount of money received, may be subject to VAT deductions.

Most people usually work as salaried workers or wage earners, but in some cases you may be offered a job as a contractor (verktaki), which excludes you from the conditions that apply to regular employees. Working as a contractor is, in effect, like operating your own business and a different set of rules apply to the taxation of such earnings.

Working in this way means that you are completely responsible for your health (and where it applies accident) insurance, pension fund payments, union dues as well as all other compulsory payments collected by the state. Failure to declare earnings may result in severe financial complications, and it is therefore important to have all the necessary documents in order.

Here is a list of things to do when working as a contractor:

• Buy a triplicate invoice book with numbered pages in any local bookshop. Instead of receiving a pay slip like employees do, you will have to invoice the person you are working for. Information that should appear on the invoice include: your name and ID number (kennitala), the name and ID number of the company/individual you are working for, a description of the job done and the amount charged, VAT charge (where applicable) and the total amount to be paid to you. Note that the invoices you submit must be in the right numerical order, and the same number must not appear more than once (over a period of 12 months). The person/company being invoiced gets the original, one should be kept for your own personal financial records and the other goes to the tax office with your tax return at the end of the year. It is also advisable to keep all receipts as you can use these to receive tax deductions.

• Register with the tax office (Tryggvagata 19, 4th floor) as a contractor. You will have to complete forms stating the type of work being done, the amount earned per month, and whether you intend to use your tax discount. This is to enable the tax office to send you a giro slip for the tax payments. However, if the annual income is Kr. 215,000,00 or less, it may be declared on the tax return form at the end of the year.

• All goods and services sold for more than Kr. 220,000,00 over a twelve-month period are subject to a VAT (Value Added Tax) charge, and as such, contractors are expected to register at the Tax office (eight days before the first day of work as a contractor) as a VAT payer. It is not compulsory to charge VAT on services that amount to less than Kr. 220,000,00 over a twelve-month period and are not be required to register. However, if you decide to charge VAT for this amount, you should register with the tax office. The VAT can be paid to the tax office every two months (January-February, March-April, May-June, etc.) or once a year. Individuals who collect smaller amounts are usually only required to pay it once a year.

IT IS USUALLY NOT ADVISABLE TO ACCEPT WORK UNDER THESE CONDITIONS EXCEPT IN CASES WHERE NET EARNINGS ARE VERY HIGH.

 
Contact the tax office for more information:

Skattstjórinn í Reykjavík (Inland Revenue Reykjavík) Tryggvagötu 19,101 Reykjavík Tel.: 560 3600 www.skr.is