On January 1st 2007 the income tax on individuals in Iceland is reduced by 1%, the allowed tax deduction is raised and VAT on food, restaurant services, books, magazines and music is lowered.

Lower income tax

The income tax on individuals is reduced from 36,72% to 35,72% and the monthly tax deduction is raised to 32,150 ISK meaning that all income up to 90,000 ISK (1,250 USD) is tax free.

Reduced VAT

VAT will also be reduced from March 1st 2007 and the aim is to lower the cost of living.

VAT on food is lowered from 14% to 7%, excise duties on most food are abandoned and duty rates lowered considerably.

VAT on hotel accommodation, books, magazines, media subscription fees and house heating is reduced from 14% to 7%.

VAT on restaurant services and music is reduced from 24.5% to 7%.