Professional content

Tax alert - New VAT provisions

7.1.2012 Article

The purpose of this alert is to notify service providers that newly amended provisions of the Icelandic VAT act in certain cases shifts the liability on the return of VAT from the customer domiciled in Iceland, to the non-domiciled service provider.

On 1 November 2011 new VAT provision on electronically provided services came into effect in Iceland. The new provisions stipulate that providers of electronically provided services in Iceland, that are neither domiciled, nor have a permanent establishment in Iceland, are liable to collect 25.5% VAT on the service they provide in Iceland. The VAT collected is to be reported and returned in Iceland.

However, this does only apply to services provided electronically to persons and entities domiciled in Iceland, who are not registered for VAT purposes. Furthermore, service providers are exempt from VAT obligation if their income from the electronically provided services in Iceland does not exceed ISK 1.000.000, on any 12-month period.

The term electronically provided includes, among others;

  • website supply, web-hosting, distance maintenance of programs and equipment;
  • supply of software and updating thereof;
  • supply of images, text and information and making available of databases;
  • supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events;
  • supply of distance teaching. 

Parties who provide services electronically, and fail to register for VAT purposes, can be liable for VAT not collected from the date the new provision came into force, and can be subject to retroactive VAT tax assessment, that may include a surcharge.

If you or your clients may be subject to the provisions, it is advisable to seek guidance, as to whether VAT obligation exists. For further information, please contact Nordik Legal Services.