Iceland’s draft Tax and Customs Reform Act proposes simplified taxation for occasional side income, stricter oversight of charitable organisations, and changes to the binding tax ruling system. The consultation runs until 20 October 2026, with the proposed measures scheduled to take effect on 1 January 2027.
Iceland’s Ministry of Finance and Economic Affairs has published a draft bill titled “The Icelandic Tax and Customs Reform Act” on 6 October 2026, proposing various structural and administrative updates across Iceland’s tax, value-added tax (VAT), and customs frameworks.
The legislation introduces a simplified tax rule with a 30% deduction and an ISK 2 million threshold for individuals earning occasional side income. It strengthens oversight of charitable organisations by establishing clearer criteria for tax-exempt status and requiring certified asset valuations.
The key measures are as follows:
Simplified tax regime for occasional side income
The proposed regime introduces simplified taxation for individuals earning up to ISK 2 million annually from occasional side activities, with an automatic 30% deduction on gross income. It targets low-risk activities outside regular employment or independent business operations. The threshold aligns with Iceland’s VAT registration exemption limit. The measure is expected to increase state net income tax revenue by ISK 250 million and municipal tax revenue by ISK 200 million.
Tightened oversight for non-profits & public-interest entities
Iceland’s proposed rules would limit charitable donation tax deductions mainly to monetary contributions. Donations of movable property would qualify only if an individual item is worth at least ISK 5 million and its value is certified by a licensed auditor; combining lower-value items to meet the threshold is prohibited.
Iceland Revenue and Customs could also revoke public-interest status retroactively for non-compliance, tax grants received after deducting acquisition expenses, impose a 25% tax surcharge, and prevent re-registration for the decision year and the following two calendar years.
Reform of the binding tax ruling system
The proposed amendments to Iceland’s binding tax ruling framework would exclude customs matters, which remain governed by the Customs Act No. 88/2005. They would extend the deadline for issuing rulings from 4 weeks to 2 months and clarify grounds for rejecting applications involving subjective valuations, transfer pricing, uncertain facts, preliminary corporate registrations, or general tax advice. Advance rulings would remain limited to future transactions, with electronic delivery permitted.
The official consultation period for the published draft bill runs from 6 October to 20 October 2026.
The proposed bill is scheduled to enter into force on 1 January 2027.
