Iceland tax optimisation for owners of an ehf. and the self-employed

This skill sets out the legal choices an owner-manager in Iceland can make about how income is paid and taxed, and the conditions attached to each choice. Figures are for tax year 2026. It covers the choice between working in your own name and through a private limited company (einkahlutafélag, ehf.), the owner's calculated remuneration (reiknað endurgjald), dividends, pension deductions, the personal tax credit and rental income. It does not cover aggressive schemes. Every choice here is a choice the law offers openly, with its conditions.

Withholding rates in this skill include the weighted average municipal tax (útsvar). Each municipality sets its own útsvar, so a person's final rate is settled at assessment. Figures printed on the "Álagningarseðill og forsendur 2026" pages describe the 2026 assessment of 2025 income and are not used here as 2026 figures.

The method, step by step

1. Decide whether the person must compute calculated remuneration. A person who works in their own business in their own name must compute it. A person who works in a company must compute it if they are a controlling party (ráðandi aðili), as defined in the reiknað endurgjald table below. Source: Reiknað endurgjald 2026, lög nr. 90/2003 um tekjuskatt.
2. Pick the occupation category (A to H) and read the minimum monthly and yearly amount for 2026 from the Reiknað endurgjald 2026 page. Set the calculated remuneration at least at that amount unless there is evidence for a lower figure.
3. Run withholding (staðgreiðsla), employer social security tax (tryggingagjald) and pension contributions on that remuneration, as for any wage. Rates and brackets are in the tables from Helstu tölur og prósentur 2026 and Tryggingagjald.
4. In an ehf., the profit left after the remuneration is taxed at the company rate. Profit paid out as a lawful dividend is taxed on the shareholder as capital income, withheld by the company. Source: Arður.
5. Use the pension deductions: the mandatory contribution and, separately, a supplementary private pension (séreignarsparnaður), both paid regularly. Source: Iðgjald í lífeyrissjóði.
6. Check the personal tax credit is used in full, including a spouse's unused credit where the couple is jointly taxed. Source: Persónuafsláttur.
7. For a first home, check the tax-free use of séreignarsparnaður under the first-home scheme. Source: Fyrsta íbúð.
8. Report the remuneration on the individual's tax return and as an expense in the business accounts. The tax authority (Ríkisskattstjóri) reviews it as it sees reason to. Source: Reiknað endurgjald 2026.

Section 1: Quick reference

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/helstutolur/2026/helstu-tolur-og-prosentur-2026
Withholding rate, bracket 1, wages, 2026 (includes average útsvar)	31.49%	"Skattþrep 1"
Withholding rate, bracket 2, wages, 2026 (includes average útsvar)	37.99%	"Skattþrep 2"
Withholding rate, bracket 3, wages, 2026 (includes average útsvar)	46.29%	"Skattþrep 3"
Personal tax credit per month, 2026	ISK 72,492	"Persónuafsláttur á mánuði"
Personal tax credit per year, 2026	ISK 869,898	"Persónuafsláttur á ári"
Capital income tax, individuals, 2026	22%	"Skattur á fjármagnstekjur"
Capital income allowance per person (interest, and dividends and gains on listed shares only)	ISK 300,000	"Frítekjumark er 300.000 kr. samtals á manni"
Capital income allowance, married couple	ISK 600,000	"fyrir hjón"
Company income tax, hf. and ehf.	20%	"hlutafélög, einkahlutafélög o.fl."
Income tax, partnerships taxed as separate entities (sf.), estates and similar	37.6%	"sameignarfélög, dánarbú, þrotabú o.fl."
Tax rate on children's income (born 2011 or later) above the children's tax-free amount	6%	"Skatthlutfall barna"

The capital income allowance covers interest income on one side, and dividends and gains from shares in companies listed on a regulated market or trading facility on the other. The page reads "á annars vegar við vaxtatekjur og hins vegar tekjur af hlutabréfaeign í formi arðs og söluhagnaðar í félögum skráðum á skipulegum verðbréfamarkaði" (applies to interest income and to income from shareholdings as dividends and gains in companies listed on a regulated securities market). Dividends from an unlisted ehf. therefore get no allowance under this text.

2026 thresholds from the ministry note of 22 December 2025

Item	Value	Note
Source	all figures below	https://www.stjornarradid.is/efst-a-baugi/frettir/stok-frett/2025/12/22/Breytingar-a-stadgreidslu-um-aramotin/
Weighted average útsvar built into the withholding rates, 2026	14.94%	"þar af 14,94% útsvar"
Yearly income tax base where the middle bracket starts, 2026	ISK 5,977,470	"Þrepamörk upp í miðþrep"
Yearly income tax base where the top bracket starts, 2026	ISK 16,781,397	"Þrepamörk upp í háþrep"
Yearly tax-free amount of wages, 2026 (after the mandatory pension contribution)	ISK 2,877,560	"Skattleysismörk launa"
Yearly tax-free amount for children under 16, 2026	ISK 300,000	"Skattleysismörk barna yngri en 16 ára"

From tax year 2026 spouses and cohabitants lose the right to share the second and third brackets in the case where one has an income tax base in the third bracket and the other does not. The note reads "Á tekjuárinu 2026 fellur út heimild hjóna og sambúðaraðila að samnýta annað og þriðja þrep" (in income year 2026 the right of spouses and cohabitants to share the second and third bracket falls away). In that case, do not plan on shifting bracket room between the two for 2026.

Monthly withholding brackets, 2026

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/stadgreidsla/skattthrep/2026/
Top of bracket 1, per month, wages	ISK 498,122	"Skattþrep 1 Af tekjum"
Top of bracket 2, per month, wages	ISK 1,398,450	"Skattþrep 2 Af tekjum"

Section 2: Own name or an ehf.

Route	Treatment
Business in own name (eigin kennitala)	The owner computes calculated remuneration, taxed as wages. The rest of the business profit is also the owner's income.
ehf. (private limited company)	The controlling owner computes calculated remuneration, taxed as wages. The company pays company income tax on its profit. A lawful dividend is capital income of the shareholder.

The reason owners use an ehf. is that profit above a fair salary can be taxed at the company rate and, when paid out, at the capital income rate, both in the quick reference table, instead of at the wage withholding rates. The calculated remuneration rule limits this: an active controlling owner must first take the remuneration the rules require, and that part is taxed as wages. Whether the combined company and dividend burden is lower than wage tax depends on the facts. No allowed page prints a combined rate, and this skill does not compute one.

A distribution that is not a lawful dividend is not taxed as a dividend. The Arður page reads "Ef um er að ræða óheimila úthlutun arðs fer með þær tekjur annað hvort sem laun eða sem gjöf" (an unlawful distribution of dividends is treated either as wages or as a gift), taxed at the ordinary income tax rates and útsvar.

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/fjarmagnstekjur/ardur/
Capital income tax rate on dividends, since 1 January 2018	22%	"er 22% frá og með 1. janúar 2018"

A dividend counts as income in the year the decision to distribute is made, not necessarily when it is paid. The paying company withholds the capital income tax. If the dividend is not paid in the year of the decision, the withholding is due at the latest with the return for October to December of the decision year (same page).

A special rule taxing excess dividends of controlling working shareholders as wages ("Arður talinn sem laun") applied only at the assessment years 2011 to 2014, per the same page. It is not current law and is not used in this skill.

Section 3: Calculated remuneration (reiknað endurgjald), the key constraint

Who must compute it. A person working in their own business, alone or in a business run in common with others, must compute remuneration and treat it as wages: withholding, tryggingagjald and pension contribution. A person working in a company must do so if they are a controlling party by ownership or management participation (ráðandi aðili vegna eignar- eða stjórnunaraðildar). A controlling party is a person who, alone or together with a spouse, children, parents, siblings or other close relatives, or working shareholders, owns the share in the table below or more, AND personally owns the own-share figure in the table or more. Both conditions must be met. Indirect ownership or management counts in the same way, for example work for a subsidiary or associate of a company the person controls. For a group of working shareholders who are not related, the page states the group test as more than the group share in the table, with the same personal minimum: "eigi hópur starfandi hluthafa meira en 50% í lögaðila þá skulu viðmiðunarreglur um reiknað endurgjald gilda um þá ef eignarhlutur viðkomandi er a.m.k. 5%" (if a group of working shareholders owns more than 50% of a legal entity, the rules apply to them if the person's own share is at least 5%). The rule does not apply to work for a company listed on a public securities market.

How much. The remuneration must not be lower than the person would have earned working for an unrelated party. The tax authority sets minimum amounts each year by category A to H. Benefits in kind (for example a company car) are added on top. The amounts below are 2026 minimums for selected categories; the full list is on the page.

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/atvinnurekstur/stadgreidsla-og-reiknad-endurgjald/reiknad-endurgjald/2026/
Controlling party test: share owned with family or working shareholders, at least	50%	"á samtals 50% hlut eða meira í lögaðila"
Controlling party test: share owned personally, at least	5%	"og á sjálfur 5% hlut eða meira í lögaðilanum"
A(6) specialist working alone, per month	ISK 1,440,000	"Mánaðarlaun"
A(6) specialist working alone, per year	ISK 17,280,000	"Árslaun"
B(5) general business, alone or with fewer than two staff, per month	ISK 933,000	"Mánaðarlaun"
B(5) general business, alone or with fewer than two staff, per year	ISK 11,196,000	"Árslaun"
B(9) general business starting for the first time, alone or with one employee, first year only, per month	ISK 681,000	"Mánaðarlaun"
C(5) category C with fewer than two staff, per month	ISK 1,129,000	"Mánaðarlaun"
C(6) category C working alone, per month	ISK 795,000	"Mánaðarlaun"
Floor when the person has another paid job or another job that itself requires calculated remuneration: never below this share of the benchmark, plus any increase set under the minimum rules	25%	"aldrei lægra en 25% af viðmiðunarfjárhæðinni"
Estimated yearly remuneration below this amount falls outside withholding (still taxable)	ISK 700,000	"Reiknað endurgjald innan við 700.000 kr."

Lower than the benchmark. A person who considers the remuneration should be lower than the benchmark must attach documents and reasons to the tax return. The tax authority may accept a lower figure if the reasons and documents justify it. If it does not, it raises the remuneration to the benchmark. For a self-employed person, a raise by the tax authority may not create a loss in the business beyond the year's ordinary depreciation, and for an old-age or disability pensioner with their own business it may not create a loss at all. This limit does not apply to a company or to a person who computes remuneration for work in a company. The page reads "hún gildir ekki um rekstur lögaðila og þeirra sem reikna ber sér endurgjald vegna starfa hjá þeim" (it does not apply to the business of a legal entity or to those who must compute remuneration for work for one).

Another job. If the person has another fixed paid job, or another job for which remuneration must be computed, the benchmark may be reduced by the amount by which the pay or remuneration for the other job exceeds half of the benchmark, but never below the floor in the table plus any increase set under the minimum rules.

Spouses in one business. Where spouses or jointly taxed cohabitants run a business together, each sets their own remuneration and the profit is split in proportion to it. Where only one runs the business and the other works in it, remuneration is computed for the other's work as if an unrelated person did it.

Audit point. Remuneration below the benchmark without documents and reasons on the return will be raised to the benchmark. Set it at or above the benchmark for the category, or document the lower figure.

Social security tax on the remuneration

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/atvinnurekstur/skattar-og-gjold/tryggingagjald/
Tryggingagjald total, 2026	6.35%	"tryggingagjaldshlutfallið samtals"
Minimum yearly base for the self-employed on own work, full time	ISK 748,224	"en þó ekki lægri en 748.224 kr. árstekjur"

Section 4: Deductions and reliefs

Pension contributions

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/tekjur-og-fradraettir/idgjald-i-lifeyrissjodi/
Maximum deduction, mandatory pension contribution	4%	"Hámarksfrádráttur er 4% af iðgjaldsstofni"
Additional deduction, supplementary private pension (séreign)	4%	"allt að 4% vegna iðgjalda samkvæmt samningi um viðbótartryggingavernd"

These are two separate deductions, each a share of the contribution base. Both require regular payment: "Skilyrði frádráttar er í báðum tilvikum að iðgjöld séu greidd reglulega" (in both cases the condition is that contributions are paid regularly). The same rules apply to employees and to a person working in their own business.

Personal tax credit (persónuafsláttur)

Residents of Iceland aged 16 or older get the personal tax credit in the quick reference table. It reduces income tax on wages and pension; it is not a deduction from income. Unused credit in one month builds up and can be used later in the same year. Unused credit does not carry to the next year: "Ónýttur persónuafsláttur færist ekki á milli ára". A spouse's credit may be used "að fullu eða að hluta ef maki nýtir hann ekki sjálfur" (in full or in part if the spouse does not use it). The page prints no percentage for the transfer. Source: Persónuafsláttur.

Séreign for a first home

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/skattamal/nyting-sereignarsparnadar/fyrsta-ibud/
Maximum tax-free use per person per year	ISK 500,000	"Árleg hámarksnýting séreignarsparnaðar"
Total maximum over the 10-year period	ISK 5,000,000	"Samtals nemur hámarksheimild"
Minimum ownership share the applicant must acquire	30%	"Umsækjandi eignist 30% eignarhlut í eigninni"

Conditions, all of which must be met: the applicant acquires at least the ownership share in the table, applies within 12 months of signing the purchase contract, and is buying a first home or has not owned residential property for five years. Use can run for at most a continuous 10-year period.

The general scheme for using séreign tax-free on a home for own use ended at the end of 2025. The Nýting séreignarsparnaðar page reads "féll úr gildi í lok árs 2025 og hefur ekki verið framlengd" (lapsed at the end of 2025 and has not been extended). For 2026 only the first-home scheme is available.

Rental income from a home

Item	Value	Note
Source	all figures below	https://www.skatturinn.is/einstaklingar/fjarmagnstekjur/leigutekjur/
Share of residential rent taxed as capital income, from 2026	75%	"færast því einungis til skattskyldra tekna 75% af fenginni leigu"
Share exempt before 2026 (old rule)	50%	"Frítekjumarkið var áður 50%"

The relief applies to letting residential property for the tenant to live in. Letting counts as capital income only where it falls under the Rent Act (húsaleigulög) and no more than two separate dwellings are let; the page reads "ef um er að ræða útleigu sem fellur undir húsaleigulög og hinar útleigðu sérgreindu íbúðir ekki fleiri en tvær" (where the letting falls under the Rent Act and the separate dwellings let are not more than two). Letting of more dwellings, or letting property to a business, is business income. From 2026 a quarter of that rent is exempt and the rest is capital income; the page says "Þetta gildir frá og með árinu 2026" (this applies from 2026). Short-term letting (heimagisting, for example Airbnb) is taxed either as business income or as capital income and is not covered by this skill.

Business expenses

Genuine costs of the business are deductible against business income, whether in own name or in an ehf. Private spending booked as a company expense is not a deduction.

Section 5: Red lines (do not cross)

• Remuneration red line. Never set a controlling owner's remuneration below the category benchmark without documents and reasons that justify it.
• Lawful dividends only. A distribution that is not a lawful dividend is taxed as wages or a gift.
• Substance. The ehf. must carry on a genuine business.
• Private spending. Private costs booked as company expenses are not deductions.

PROHIBITIONS

• Prohibition 1. NEVER advise a controlling owner to take remuneration below the benchmark to maximise dividends.
• Prohibition 2. NEVER present the ehf. route as avoiding wage tax entirely; the calculated remuneration is taxed as wages.
• Prohibition 3. NEVER state the ISK 300,000 capital income allowance as covering dividends from an unlisted ehf.
• Prohibition 4. NEVER present this skill as definitive advice; route to a licensed Icelandic tax adviser.

Ask the client first

• Do you work in the business in your own name, or through a company? If a company, what share do you own, and what do your spouse, children, parents, siblings, other close relatives and working shareholders own together with you?
• Which category (A to H) describes your work, how many staff do you have, and is this your first year of business?
• Do you have another fixed paid job, and what does it pay?
• Is the company listed on a public securities market?
• Are you married or jointly taxed, and does your spouse use their personal tax credit in full?
• Are you buying a first home, or have you owned no home for five years?

When to refuse or refer

• Refer any plan that sets remuneration below the benchmark; the documents and reasons must come from an adviser who knows the business.
• Refer cross-border cases (non-resident owners, foreign companies, double tax treaties).
• Refer holding structures and dividends between companies; this skill does not cover them.
• Refer short-term letting (heimagisting) and rental of more than ordinary residential letting.
• Refuse any scheme that hides private spending in the company or pays disguised dividends.
• For the full 2026 wage withholding, pension and capital income computation use iceland-income-tax; for running the remuneration through payroll use iceland-payroll.

Sources

• Helstu tölur og prósentur 2026
• Breytingar á staðgreiðslu um áramótin, 22 December 2025
• Skattþrep 2026
• Reiknað endurgjald 2026
• Tryggingagjald
• Arður
• Iðgjald í lífeyrissjóði
• Persónuafsláttur
• Nýting séreignarsparnaðar
• Fyrsta íbúð
• Leigutekjur

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a licensed tax adviser in Iceland) before acting upon.

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