Tax Changes in New Budget for Iceland

October 3, 2013 Taxation In EuropeTaxation in Iceland

Tax Collections in the USAREYKJAVIK – Tax changes in Iceland will help the country balance its budget, and will lead to the first budgetary surplus since 2008.

On October 2nd the Finance Minister of Iceland Bjarni Benediktsson unveiled in parliament the government’s budget plan for 2014, detailing tax changes intended to stabilize the national budget, while improving the standard of living and increasing real wages in the country.

One of the the key points in the coming budget was a gradual decrease by 0.34 percent over the course of the next three years the rate of payroll tax, lowering taxpayers’ burdens by ISK 3.8 billion over the time period.

In an effort to further increase the spending power of low- and medium-income earners, the government will raise the tax-free threshold on earnings from interest payments from ISK 100 000 to ISK 125 000.

The current 25.8 percent tax bracket on personal incomes will also be dropped to 25 percent.

Among other changes in the tax regulation, the plan also indicated the need to drop stamp fees on loans, to raise the tax-free threshold on income earned by children, to expand tax credits for expenses on home renovations, and to reduce the value-added tax rate on selected essential items.

The Minister also said that the tax on bank assets will be raised from 0.041 percent to 0.145 percent, and starting from the next fiscal year, the tax will be expanded to include financial institutions which are currently undergoing wind-up proceedings.

The government estimates that total revenues over the next year will hit ISK 587.6 billion, while expenditures will be a marginally lower ISK 587.1 billion, allowing Iceland to see its first budgetary surplus since 2008.

Photo by Tracy O