Iceland’s Ministry of Finance and Economic Affairs has launched a public consultation on proposed tax law amendments aimed at simplifying administration, strengthening compliance, and updating rules on interest deductions, binding rulings, nicotine products, and charitable donations.
Iceland’s Ministry of Finance and Economic Affairs (MoF) has initiated a public consultation on several proposed legislative amendments in its draft document on 4 September 2026, with a targeted entry into force on 1 January 2027.
These planned amendments aim to simplify administrative processes, increase operational efficiency, and close existing loopholes to ensure better tax compliance. Key provisions include streamlined reporting for low-income individuals, updated rules for charitable donations, and adjustments to nicotine product taxation.
The public consultation is open for submissions until 18 September 2026.
The key amendments are as follows:
Amendments to the interest deduction limitation rules
The Ministry intends to modify the current provisions governing limits on interest expense deductions. Specifically, the unchanged item b of paragraph 3 of Article 57 b of the Income Tax Act No. 90/2003 is being amended because it has been identified as potentially incompatible with European Economic Area (EEA) law.
Revisions to the binding rulings system
The Director of Internal Revenue’s binding rulings system faces proposed procedural updates designed to streamline administration and clarify scope. Changes include extending processing deadlines for delivery, authorising electronic transmission to applicants, explicitly confirming that rulings apply to future public tax assessments, codifying common grounds for rejecting or dismissing requests, and excluding customs decisions to prevent overlap with existing Customs Act advance ruling provisions.
Restrictions and penalties for public benefit organisations
The proposed bill introduces stricter parameters and oversight for public benefit organisations:
- Cash-only deductions: The deduction from the income of individuals and legal entities for donations to public benefit organisations will, as a general rule, be restricted strictly to monetary contributions (cash).
- Special exceptions: The law will allow for exemptions to this cash-only rule under special circumstances, specifically highlighting donations of medical equipment as an example.
- Misconduct penalties: The Ministry plans to examine whether to codify statutory penalties (fines/sanctions) to address instances of intentional misconduct or gross negligence by the representatives and leaders of public benefit organisations.
Nicotine product taxation
The tax structure for nicotine products is being reformed. The proposed amendment specifies that the tax or charge on nicotine products will depend directly on their strength or concentration.
