Iceland Abandons the Flat Tax

In the wake of its financial and economic crisis, Iceland modified its personal income tax.

Effective January 1, 2010, Iceland replaced its 35.7% flat-rate personal income tax (combined national and municipal) with three national rates: 24.1% on income up to ISK (Iceland Krona) 2,400,000; 27% on income between ISK 2,400,001 and ISK 7,800,000; and 33% on income exceeding ISK 7,800,001 (US$1=ISK 126.2). The additional municipal tax on these brackets ranges between 11.24% and 13.28% , putting the top personal rate at 46.28%.

It should be noted that Iceland’s flat-tax rate was the highest in the list of flat tax countries, some 10.7 percentage points above the next highest rate of 25%.

The corporate tax rate remains a flat 18%.