Employment taxes

• Income tax: Iceland uses a progressive tax system - the more you earn, the more you pay.

- 31.49% for income up to 472,005 ISK

- 37.99% for income between 472,006 ISK and 1,325,127 ISK

- 46.29% for income exceeding 1,325,127 ISK

• Municipal tax: Depends on where you live, but averages 14.67%
• Social security: Employers contribute 6.35% of gross salary, while employees contribute 4%, withheld by the employer.
• Pension contributions: A total of 15.5% goes toward your retirement - 11.5% from your employer, and 4% from you.
• PAYE system: Your employer handles all tax reporting and payments for you each month.
• VAT:

- Most goods and services are taxed at 24%.

- Some items (like food or books) get a lower rate of 11%.

• Tax incentives: There are sweet incentives for personal income, R&D, green investments, and even foreign experts (only 75% of income is taxed for the first 3 years).

Leave policy

• Vacation days: You earn at least 24 paid days off annually (2 days per month).
• Public holidays: Iceland celebrates 13 official holidays.
• Sick leave: Feeling unwell? You get up to 2 weeks paid, and the state then steps in to help out.
• Parental leave: Iceland is a dream for new parents. 12 months total, shared between both parents, paid at 80% of salary. Pay comes from both the employer and the state.

Employment termination

• Termination rules: Iceland doesn’t do at-will firing. Termination must follow a proper process and have a solid reason.
• Valid reasons for termination: voluntary by the employee, by mutual agreement, due to performance or discipline issues, or when the contract ends.
• Notice period:

- 1 week during probation (first 3 months)

- 1 month after probation

- 3 months after 6 months of employment

• Severance: Not a legal must-have, but employers do need to pay out unused vacation, bonuses, or other accumulated benefits.

Hiring & Contracts

• Types of contracts: Permanent contracts, the standard, long-term setup, fixed-term contracts for a specific task or timeline (max 2 years), part-time contracts, if you’re working fewer hours.
• A contract must include: Job title, salary, hours, start date, holiday allowance, job duties, probation period terms
• Probation period: Usually 3 to 6 months, with shorter notice periods (about 2 weeks) if things don’t work out early on.

Payroll & salary payments

• Payday: Monthly paychecks, your salary for one month, get deposited by the 1st of the next month.
• Minimum wage: No national minimum wage, but union agreements set the bar for each industry.
• Bonuses are common, and some are mandatory:

- Holiday bonus: Worth 10.17% of your yearly salary, paid between May and mid-August.

- Christmas bonus: A festive extra paid in December (usually a fixed amount).

- Many companies also offer performance bonuses and extra allowances on top.

Benefits

• Paid time off: Iceland knows how to treat its workers right! You receive at least 24 days of paid vacation, as well as sick leave and parental leave. And don’t forget, public holidays are also paid.
• Social security: Iceland’s got your back with unemployment, parental leave, and bankruptcy insurance. Plus, you’re covered with overtime pay, probation periods, and severance pay if needed!
• Extra perks: Icelandic employers offer even more perks, including private health insurance, gym memberships, flexible working hours, pension contributions, and even childcare assistance.
• Health insurance: After just 6 months of living in Iceland, you’re automatically signed up for health coverage. If you’re from outside the EEA, you’ll need to register once you hit the 6-month mark.
• Retirement plans: Iceland’s retirement system is rock solid. You get both a public pension and a mandatory occupational pension. Retirement age? 67, but if you want to retire earlier, some funds allow it with a little penalty.
  

Monthly living costs (Reykjavik Edition) 

Let’s be real, Reykjavik isn’t cheap, but you’re also getting glaciers, volcanoes, and cozy cafés with cinnamon buns on every corner. 

• Rent: ISK 200,000–300,000/month for a 1-bed in the city, cheaper if you're sharing or living just outside
• Groceries: Around ISK 50,000–70,000/month
• Transport: ISK 15,000–20,000/month for a bus pass (more if you Uber or drive)
• Coffee, drinks & going out: Latte? ISK 600. Beer? ISK 1,200. Night out? Priceless.
• Utilities & Internet: Around ISK 20,000–30,000/month

How to get a Kennitala (Icelandic ID Number)

For residents & employees:
This number is your golden ticket to everything, banking, healthcare, tax, and even library cards or gym membership.

• First, you need to register your legal residence with Registers Iceland (Þjóðskrá). Apply in person or online. 
• Documents needed: Passport or valid ID, work contract, proof of residence in Iceland, residence permit (if from outside the EEA)
• Once registered, they’ll assign your Kennitala. You’ll get it on your confirmation letter.
• Processing time is usually within 10 days. Employers can help speed this up if you're moving for work

For remote workers (non-residents):

You can apply for a temporary Kennitala through Registers Iceland or the Directorate of Internal Revenue. It won’t unlock all services, but it works for contracts, invoices, and tax stuff.

Social security registration

• If you’re staying longer than 6 months, you're in! You’ll be automatically registered in the Icelandic social insurance system.
• This includes benefits such as healthcare, pensions, and parental leave.
• Foreign workers must provide proof of address and employment.

Banking & salary payments

• To open a bank account, you need a Kennitala and usually proof of employment.
• Popular banks: Landsbankinn, Arion Banki, and Íslandsbanki.
• Iceland is big on cards, most people don't carry cash.

Housing & rental process 

• The rental market is tight, especially in Reykjavik. Start looking early! Sites like Leigulistinn, Bland, and Facebook groups are your go-tos.
• Expect to pay:
• 1–3 months’ rent as deposit
• Minimum 6-month lease
• Tenants in Iceland have strong rights; landlords need valid reasons and proper notice to evict. Rent increases are limited, and deposits must be returned if there’s no damage.

Driving & public transportation 

• Reykjavik doesn’t have a subway, but buses (Strætó) are reliable. Get the app.
• Monthly bus pass: ~ISK 15,000.
• Want to drive? Most foreign licenses are valid for 6 months, after which you'll need to convert or retake the test.
• Weather’s wild, so if you’re driving, get a 4x4, and don’t skip on snow tires.

Emergency & important contacts

• Emergency number: 112 (police, fire, ambulance)
• Healthcare advice line: 1700 (or +354 544 4113 from a foreign phone)
• Labor authority: https://island.is/s/vinnumalastofnun

Work permits & visa requirements

• EEA/EU citizens: No visa required. Just register your residence within 3 months.
• Non-EEA citizens: You’ll likely need a work permit before arriving. Processing time takes up to 90 days
• Types of permits:
• General work permit
• Specialist permit
• Remote work long-term visa (for digital nomads)

Swapp agency can help you with Work Permit Services. Contact us for an offer.

Business culture & work norms

• Flat hierarchies and a first-name basis, even with the CEO.
• Work-life balance is the holy grail.
• Everyone’s chill, but don’t mistake that for lack of ambition; it’s just a different vibe.

Why work in Iceland? 

• Nature is like nowhere else. 
• Strong social safety net
• Friendly people and an inclusive culture
• Innovation-driven economy, especially in tech, energy, and creative sectors.