Iceland HR and payroll glossary

Erlendir sérfræðingar Foreign experts' income exclusion

erlendir sérfræðingar

Qualifying foreign experts hired from abroad can have 25% of their pay excluded from income tax for their first three years in Iceland. The employer applies for approval, and the relief changes net-pay comparisons for senior foreign hires. Source

Persónuafsláttur Personal tax credit

persónuafsláttur

A credit deducted from the tax withheld, not from income: ISK 869,898 a year (ISK 72,492 a month) in 2026. Employees tell the employer whether to apply it, and unused credit can be transferred between spouses. Source

Staðgreiðsla Pay-as-you-earn withholding

staðgreiðsla

The withholding system for income tax and municipal tax combined. In 2026 pay after the 4% pension contribution is withheld at 31.49% up to ISK 498,122 a month, 37.99% up to ISK 1,398,450 and 46.29% above, less the personal tax credit. The employer pays it over to Skatturinn monthly. Source

Tekjuskattur State income tax

tekjuskattur

The state part of the withholding rate: 16.55%, 23.05% and 31.35% in the three 2026 brackets (thresholds ISK 5,977,470 and 16,781,397 a year). Municipal tax is added on top, so the combined rates are 31.49%, 37.99% and 46.29%. Source

Útsvar Municipal income tax

útsvar

The flat income tax set by the municipality of residence: 14.97% in Reykjavík, the legal maximum. Monthly withholding uses the national average of 14.94% for 2026, and any difference is settled in the annual assessment. Source

Útvarpsgjald Broadcasting fee

útvarpsgjald

A flat fee for public broadcasting, ISK 22,200 in the 2026 assessment, levied once a year on people above a low income threshold, together with a flat fee to the Construction Fund for the Elderly (ISK 14,614). Neither is withheld from monthly pay. Source

Lífeyrissjóður Mandatory pension fund contribution

lífeyrissjóður (iðgjald)

Every employee must belong to an approved pension fund. The statutory minimum contribution is 15.5% of pay, split under the general collective agreements as 4% from the employee (deductible from taxable income) and 11.5% from the employer, with no ceiling. The fund is usually set by the collective agreement for the trade. Source

Séreignarsparnaður Voluntary supplementary pension savings

séreignarsparnaður

An optional extra pension saving of 2–4% of pay by the employee, deductible from taxable income. Under most collective agreements the employer must add 2% when the employee joins, so it is a common cost in offers. Source

Tryggingagjald Social security tax

tryggingagjald

The employer's social security tax: 6.35% in 2026 (general social security tax 4.90%, employment insurance 1.35%, wage guarantee fund 0.05% and a market levy 0.05%). It is charged on pay plus the employer's pension contribution, so in practice about 7.1% of pay. Source

Orlof / orlofslaun Annual leave / holiday pay

orlof / orlofslaun

The Holiday Act gives at least 24 working days a year (2 days per month worked) and holiday pay of at least 10.17% of pay. Collective agreements add days with seniority, typically up to 27–30; the main holiday is taken between 2 May and 15 September. Source

Kjarasamningur Collective agreement

kjarasamningur

Iceland has no statutory minimum wage. The general collective agreements (for example SA–VR for office staff) set minimum pay, the pension split, notice, probation, sick pay and holidays, and are binding as minimum terms on all employers in the trade. Union density is very high. Source

Reynslutími Probation period

reynslutími

There is no statutory probation, but the general collective agreements treat the first 3 months as a trial period with short notice (about 1 week in the first months). Source

Uppsagnarfrestur Notice period

uppsagnarfrestur

By law at least 1 month after 1 year's continuous service, 2 months after 3 years and 3 months after 5 years, always to the end of a month. Collective agreements set longer periods, commonly 3 months for white-collar staff after probation. In the private sector there is no general just-cause requirement, and no statutory severance pay. Source

Kennitala Icelandic identity number

kennitala

The ten-digit identity number issued by Registers Iceland, needed for payroll, tax, pension fund membership and a bank account. A foreign hire must get one before being paid; non-residents receive a system ID number. Source

Skatturinn Iceland Revenue and Customs

The tax authority. Employers register with it as payers of wages, withhold income and municipal tax under staðgreiðsla, and report and pay the tax withheld and the social security tax every month. Source

Vinnumálastofnun Directorate of Labour

The agency that handles work permits for non-EEA nationals, registration of foreign service providers, unemployment benefits and the wage guarantee fund. An employer hiring a Japanese national applies to it for the work permit. Source