General – Labor market

Investing in Iceland requires an understanding of Iceland’s tax and labor laws, which are likely  different to those in your current location. We provide here a general overview, however, for more detailed information we suggest contacting us at Húnaþing vestra or Icelandic Revenue directly (Ríkisskattstjóri).

Labor market

Iceland’s population as of January 1st, 2015 was 329 100, of which 82% participate in the workforce. The unemployment rate is 4% (as of March 2015). 

Contracts between the employer and the employee are required for periods of employment longer than a month. Employment can be either full-time,  usually defined as 40 hours per week, or part-time, which is less than 40 hours per week. The work week runs from  Monday to Friday and work days are typically eight hours long. Wages are determined either weekly or monthly and the employer is required by law to pay  employment-related fees required by law.

Private employers in Iceland have greater flexibility to terminate employment than in most other European countries. In general, employment may be terminated provided mandatory notice is given – typically three months. The employer can opt to pay the wages for the notice period without requiring an employee to work the notice period.


Employers are required to calculate and deduct taxes from all salaries and wages paid to employees. Employers are also responsible for the payment of payroll tax.

Other taxes are also levied in Iceland include:

  • Corporate income tax is 20% , one of the lowest tax rates within OECD member countries.
  • A value added tax (VAT) of 24% levied on all goods and services, and 11% for  food, newspapers and certain other items.
  • Capital gains tax is paid by both individuals and companies.