Iceland – Buying Property

Can foreign nationals legally buy and own property in Iceland?

The legal framework governing property ownership in Iceland is set out in the Act on the Right of Ownership and Use of Real Property, No. 19/1966. The legislation draws a clear line between EEA and non-EEA buyers, giving Iceland’s system a more structured character than many comparable markets — for instance, unlike Spain or Portugal, where most non-EU buyers can acquire property with minimal restrictions, Iceland requires either a verifiable residential connection or formal state authorisation.

Nationals of EEA countries enjoy straightforward rights when it comes to purchasing property in Iceland and may acquire residential or commercial real estate without applying for any special authorisation. This freedom extends to citizens of all EU member states, Iceland’s EFTA partners (Norway, Liechtenstein, and Switzerland), and Faroese nationals under the terms of the Hoyvík Agreement.

Foreign nationals who hold legal domicile in Iceland are entitled to buy property there. The relevant legislation specifies that no individual may acquire ownership or use rights over Icelandic real property unless they are an Icelandic citizen or are domiciled in the country.

Establishing legal domicile in Iceland requires holding a kennitala (a civil registration number) and being enrolled in the national register at Registers Iceland. Non-EEA nationals will need a valid residency visa and, unless they have independent means, a work permit as well. Being lawfully domiciled also presupposes having an established residence — usually a rented property — since it will not be possible to purchase outright from the outset.

Non-EEA citizens must submit an application for a special permit to the Ministry of Justice before they can acquire property in Iceland. Permission is typically forthcoming where the applicant can show a credible link to the country, such as residency or documented business interests. As of August 2025, processing times commonly run from several weeks to a few months, depending on workload and how complete the submitted materials are.

In July 2020, Icelandic law was amended to cap individual land holdings at 10,000 hectares, with any larger acquisition requiring the express approval of the Minister of Agriculture. The absence of public-interest concerns — including the safeguarding of sensitive environmental areas and coastal or harbour zones — is also a material factor in permit decisions. Agricultural land is subject to additional restrictions, so anyone considering a rural or farming acquisition should obtain specialist legal advice. The official rules are published by the Government of Iceland.

What are average property prices in Iceland, and how do they vary by region?

According to figures published by the Housing and Construction Authority (HMS), the Capital Region recorded the highest average purchase prices as of January 2025. While Icelandic house prices have continued to climb, the rate of increase appears to be easing. The three-month rolling average in the Capital Region stood at ISK 87,043,296 (approximately USD 619,746), representing year-on-year growth of 11.06%.

Within the Reykjavík area, a 100 m² apartment that sold for around €267,000 some years ago now commands approximately €440,000. Newly built apartments in central Reykjavík can exceed 1,000,000 ISK per square metre, while older homes in the same city typically sell for around 900,000 ISK per square metre.

Between April 2023 and April 2025, property prices rose 14.5% nationally. The average price for a multi-unit home now stands at ISK 77.2 million (approximately $552,000 / €515,000), up from ISK 66.2 million two years prior.

The Nationwide Residential Property Market Price Index published by Statistics Iceland recorded a 7.94% year-on-year increase as of February 2025, moderating from the 11.89% peak recorded in September 2024. After adjusting for inflation, the real increase came in at 3.58% relative to the same period in 2024.

In 2023, average apartment prices in Reykjavík were around 5,000 euros per square metre, while more rural locations such as Akureyri were considerably cheaper. Properties in the North, East, and Westfjords regions can offer significantly greater affordability than the capital, though market liquidity is much lower and selling a property there may take considerably longer. Portals such as Fasteignir.is and Leigulistinn.is provide comprehensive listing databases enabling buyers to compare prices across different regions and develop a working understanding of the market.

Where are the most popular locations to buy property in Iceland?

Reykjavík and the Capital Region generate the largest share of property transactions and draw the widest interest from both domestic purchasers and overseas investors. A defining feature of Iceland’s real estate landscape is the steady drift towards urban living. As more people gravitate to cities in pursuit of employment opportunities and a dynamic lifestyle, demand for property in Reykjavík has intensified, fuelled by the concentration of amenities — restaurants, shopping, and cultural facilities — that the capital offers.

The Greater Reykjavík area encompasses the municipalities of Kópavogur, Hafnarfjörður, Garðabær, and Mosfellsbær, all of which are popular among buyers who want proximity to the capital while enjoying marginally lower prices and more generous living space. Rental rates per square metre are highest in Reykjavík and Kópavogur, both significantly above the national average.

Akureyri, the principal city of northern Iceland, appeals to those seeking a quieter pace of life within a genuine community setting. Property market activity outside the capital has been perceived as relatively buoyant, with Akureyri standing out in particular. The town is well served by amenities, operates a domestic airport with regular connections to Reykjavík, hosts a university, and provides access to excellent skiing at Hlíðarfjall.

The Reykjanes Peninsula — home to Keflavík International Airport and the town of Reykjanesbær — has historically attracted buyers thanks to its dual proximity to the capital and international travel links. However, the volcanic eruptions that began in late 2023, along with the displacement of residents from Grindavík, have introduced an element of geological risk to parts of this peninsula that prospective buyers must carefully evaluate.

South Iceland and the Golden Circle corridor attract buyers with an eye on the tourism rental market. Interest in holiday homes in the region has grown steadily. Iceland’s extraordinary natural environment — encompassing geothermal hot springs, glaciers, and active volcanoes — has established it as a premier tourist destination, creating demand for vacation properties in scenic locations that give easy access to outdoor pursuits.

Are there any emerging or up-and-coming areas worth considering in Iceland?

Towns and suburbs on the periphery of the Capital Region — such as Álftanes, Bessastaðahreppur, and parts of Kjósarhreppur — are drawing buyers who have been priced out of central Reykjavík but still require reasonably swift access to the city. New road and tunnel projects have progressively improved connectivity across Iceland, opening up communities that were once considered too remote.

Selfoss and the South West have attracted growing interest as both a commuter destination and a lifestyle choice. The town has expanded its services considerably, and its location between Reykjavík and the scenic south coast makes it a natural fit for remote workers and those employed in the tourism industry.

Iceland is experiencing sustained population growth, driven largely by inward migration, with an age profile that supports a healthy volume of first-time home purchases. This demographic pressure is encouraging buyers to explore towns and regions beyond the capital that were previously seen as too peripheral or under-resourced. Smaller northern settlements such as Sauðárkrókur, and Ísafjörður in the Westfjords, have also started attracting attention from those seeking affordable properties amid distinctive landscapes and expanding creative and tourism economies.

Across the greater Reykjavík area, nearly 4,000 properties were listed for sale in spring 2025, with more than half being new-build units. Nationally, the total number of available properties reached 4,400 — a record since 2017. This relative abundance of new-build stock in the capital means that some buyers are identifying better value in secondary markets and well-situated regional towns.

What are the current trends in the Iceland property market?

The national residential price index rose by close to 8% year-on-year in early 2025, though the pace of growth is tempering as policy interest rates gradually decline. In the capital region, detached houses climbed approximately 9% over a twelve-month period while apartments rose around 6%. The era of sustained double-digit annual price surges appears to be giving way to a more moderate cycle.

One telling indicator of a market in transition is the lengthening of average selling times. In early 2025, the typical time on market approached five months — about two months longer than in mid-2024. There is a stark contrast between old and new stock: resale homes were selling in around three and a half months, while new-build properties were taking approximately fourteen months to find a buyer.

This tension between supply and demand is also evident in transaction volumes: in 2024, just over 13,000 residential sales were completed, an increase of more than 40% year-on-year, while only around 3,500 new homes were delivered — with construction expected to slow further in the years ahead.

Buyers in Iceland are placing increasing weight on modern, energy-efficient properties. Growing environmental awareness and a desire to reduce energy bills have generated rising demand for homes built with sustainable materials and fitted with energy-saving technologies. Smart home features and contemporary amenities are similarly high on buyer wish lists.

From September 2025, a new requirement obliges developers to carry out a Life Cycle Assessment (LCA) for a wide range of new building permit applications. This framework, supported by the Construction Authority and private-sector partners, is designed to quantify carbon emissions across the entire lifespan of a building. Small buildings, modest vacation homes, and minor extensions are exempt from the requirement.

After a sustained period of aggressive rate increases to combat inflation that peaked at 8.7% in 2023, the Central Bank of Iceland began a series of measured cuts from October 2024. The key seven-day deposit facility rate fell from 9.25% to 7.25% by late 2025. Even at this level, the cost of borrowing remains markedly higher than in other Nordic countries, where mortgage rates commonly fall between 3% and 5%.

Is buying property in Iceland a good investment?

Research carried out by the Global Property Guide in April 2025 indicated that gross rental yields for all dwellings in Iceland averaged 5.20%. Within the monitored regional submarkets, the average yield observed in Reykjavík came in at 4.88%. These figures are broadly in line with mid-tier European markets such as the Netherlands or Denmark, though Iceland’s elevated financing costs can substantially compress net returns.

The average market rent recorded in newly signed contracts in Iceland reached ISK 263,318 (approximately USD 1,874) per unit in February 2025. One-room units rented for an average of ISK 186,861 per month, two-room units for ISK 241,645, and three-room units for ISK 284,042.

Iceland’s property market — particularly in high-demand zones such as Reykjavík — has demonstrated consistent capital appreciation over the years. Between 2018 and 2023, average annual price growth for residential real estate ran at approximately 6–8%, underpinned by rapid population expansion and macroeconomic stability.

Iceland has high import dependency, elevated wage levels, and a significant tax burden. Counterbalancing these factors are a robust economy, a AAA-rated sovereign, and an almost entirely renewable energy grid. Currency risk deserves particular attention from foreign buyers: the Icelandic Króna is a small and thinly traded currency that can shift sharply against major currencies during episodes of global financial stress. Those acquiring assets in ISK while earning or saving in another currency should plan for hedging strategies or maintain adequate ISK-denominated reserves.

The disposal of a property generates a taxable capital gain at a rate of 22%, save for a primary residence held for more than two years, which qualifies for full exemption. This is an important planning consideration for investors who do not intend to occupy the property as their main home. Short-term rental income can be a significant driver of yield, but buyers should note that properties reclassified as tourist accommodations may attract commercial property taxation from January 2025, even where the land register continues to describe them as residential.

As with any property market, purchasing in Iceland carries inherent risks: currency volatility, regulatory change, natural hazards arising from volcanic and seismic activity, and the possibility of economic downturns. Independent financial advice from a qualified adviser with knowledge of both Icelandic and your home jurisdiction’s rules is strongly recommended before entering into any commitment.

What types of property are commonly available to buy in Iceland?

Iceland’s property market encompasses a range of property types, though the composition of stock varies considerably between the capital and rural areas. Understanding what is available — and where — helps buyers form realistic expectations before beginning their search.

• Apartments (íbúðir): The most prevalent property type in Reykjavík and the Capital Region. Both older post-war concrete blocks and contemporary new-build complexes feature prominently. In the greater Reykjavík area, more than half of the nearly 4,000 properties listed for sale in spring 2025 were new constructions.
• Detached houses (einbýlishús): Popular across capital suburbs and regional towns, detached homes typically provide more space and garden areas. In the Capital Region, prices for detached houses rose by 9.15% year-on-year as of early 2025.
• Terraced and semi-detached houses (raðhús/parhús): Widespread throughout suburban Reykjavík and larger regional centres such as Akureyri and Selfoss, these properties occupy a middle ground between apartment living and a fully detached home.
• Summerhouses and holiday cottages (sumarhús): A deeply rooted Icelandic tradition. Summerhouses are found throughout rural Iceland, near rivers, lakes, and coastlines. Foreign buyers should be aware that these properties may be subject to specific zoning conditions and that converting them to permanent residences or operating them as commercial short-term rentals requires the relevant permits.
• Farmhouses and agricultural properties: Available in rural areas, particularly along the Ring Road and in the Westfjords. Foreign nationals may generally own property in Iceland, though specific rules apply to agricultural land. All property transactions must be notarised and registered with the Land Registry to be legally effective.
• Land plots: Self-build plots are available, though planning consent and adherence to local zoning provisions are required. In urban areas, developable land is scarce and carries a premium price.

What is the typical step-by-step process for buying property in Iceland?

Buyers in Iceland should allow approximately three to four weeks from initiating a search to completing title registration, provided no complications arise and any required Ministry of Justice permits have already been secured. Unlike the protracted conveyancing or escrow periods common in countries such as Australia or the United States, Iceland’s purchase process can move with considerable speed — making thorough advance preparation all the more important.

1. Obtain a kennitala (Icelandic ID number): A kennitala — Iceland’s civil identification number — is indispensable for all administrative, banking, and tax processes. Non-EEA nationals should also establish at this point whether a Ministry of Justice permit is required and lodge that application without delay, as processing can take weeks to months.
2. Search for property and instruct an agent: Use portals such as Fasteignir.is and engage a licensed real estate agent (fasteignasali). Icelandic real estate agents guide buyers through the process, helping to prepare contracts and checking for any registered charges against a property. Agent fees, ranging from 1.5% to 3% of the sale price, are borne by the seller.
3. Carry out due diligence: Iceland’s property registration system is recognised for its transparency, which facilitates thorough due diligence. Before committing, buyers should verify the property’s compliance with the applicable zoning plan and commission a technical inspection of the building’s condition, particularly for detached houses. A title search at the Land Registry confirms that the property is free from encumbrances or outstanding debts.
4. Make an offer and negotiate: Offers are ordinarily submitted through the agent. There is no formal reservation deposit mechanism equivalent to that used in Spain, but once an offer is accepted the parties move swiftly towards a purchase agreement.
5. Sign the purchase agreement (kaupsamningur): This is the legally binding contract between buyer and seller, documenting the agreed price, payment schedule, and completion date. A lawyer should scrutinise this document, particularly where the buyer is a foreign national. It is also necessary at this stage to collate financing documentation — loan offers and guarantees — together with a mortgage status report, a Land Registry extract, and building-related documents including plans, condominium rules, permit history, and compliance certificates.
6. Arrange financing: The major commercial banks (Íslandsbanki, Arion Bank, Landsbankinn) and the Housing and Construction Authority (HMS) provide mortgage lending, including to foreign nationals, though eligibility hinges on residency status, income stability, and credit standing. Banks typically lend up to 80% of the purchase price for a primary residence, with some limiting non-residents to a 50–70% loan-to-value ratio.
7. Sign the deed of transfer and involve the Notarius Publicus: At the point of final execution, the Notarius Publicus verifies the formal validity of the documentation, confirms the legal capacity of the parties, and oversees the transfer of funds, preferably through an escrow account.
8. Register the title with the Land Registry: Once the kaupsamningur has been executed and, where applicable, ministerial approval has been obtained, the signed documents are lodged with the district magistrate’s office (Sýslumaður), which administers registration in the land registry. Registration must be completed within two months of signing to avoid penalty charges.
9. Pay taxes and fees at completion: Stamp duty is levied at 0.8% for individual buyers, reduced to 0.4% for first-time purchasers of residential property. A registration fee and, where applicable, a notary fee are also payable. All current fee levels should be confirmed with official sources or a local legal adviser.

Do I need a lawyer to buy property in Iceland, and how do I find a reputable one?

Retaining a lawyer to draft or review contracts and to ensure compliance with all applicable legal requirements is advisable. While there is no absolute statutory obligation to use a lawyer for every residential purchase, doing so is strongly recommended — particularly for foreign buyers navigating an unfamiliar legal system, for those acquiring agricultural or rural property, for buyers purchasing through a corporate structure, or for non-EEA nationals who require a Ministry of Justice permit.

Legal fees for property transactions typically range from ISK 100,000 to in excess of ISK 300,000, depending on the complexity of the transaction (as of 2025 — verify current rates with a practitioner). For non-EEA buyers, additional fees may arise in connection with the permit application process. Some buyers opt for a combined agent-and-lawyer service, which can be efficient but may limit the independence of the legal oversight provided.

Lawyers in Iceland must be members of the Lögmannafélag Íslands (Icelandic Bar Association), which maintains a searchable directory of qualified practitioners organised by area of specialisation. The Association can be contacted through their website: www.lmfi.is. When choosing a lawyer, seek one with specific expertise in real estate law (fasteignalög) and, ideally, with a track record of advising foreign clients. Clarify their fee arrangement — fixed fee or hourly rate — before issuing instructions.

For any property transaction in Iceland, consulting an independent local lawyer or notary is advisable to ensure that all legal requirements are met and that the process unfolds without complication. Obtaining advice that is genuinely independent — in particular, from a lawyer not recommended by the selling agent — is strongly encouraged.

What are the most common pitfalls and problems when buying property in Iceland?

Foreign buyers in Iceland face a number of risks that thorough due diligence and professional guidance can substantially mitigate. Below are the most frequently encountered difficulties:

• Failing to secure domicile status before committing to a purchase: The requirement that foreign buyers hold legal domicile in Iceland raises significant practical challenges. Establishing domicile necessitates having a kennitala and being registered with Registers Iceland. Buyers who attempt to complete a transaction without the appropriate status risk having it blocked entirely.
• Undisclosed encumbrances: Prior to exchange, the buyer must verify that the property is unencumbered by legal disputes, outstanding debts, or registered charges. This is ordinarily achieved through a Land Registry search confirming that the seller holds clear title and that no third-party claims exist against the property.
• Zoning and planning non-compliance: Buyers are required to verify that the property’s current use accords with the applicable zoning plan — for example, converting a home into a short-term tourist rental is not freely permitted without the necessary authorisations. Purchasing a property with the intention of operating it as holiday accommodation and subsequently discovering it lacks commercial zoning approval is a common and expensive error.
• Structural and environmental risks: Iceland’s volcanic and seismic environment means that properties must be capable of withstanding earthquakes and related hazards. A professional structural inspection (a matseðill or technical survey) should always be commissioned before completion. Properties in the Reykjanes Peninsula carry specific volcanic risk that warrants specialist assessment.
• Short-term rental tax reclassification: A recent regulatory adjustment has reclassified certain homes operated as tourist accommodation from category A to category C, with effect from January 2025. An apartment run under a commercial licence for tourist stays is therefore now taxed as a commercial property, even if the land register still classifies it as residential. Buyers intending to operate Airbnb-style rentals should obtain up-to-date tax advice prior to completing any purchase.
• Currency transfer risk: The Icelandic Króna is not freely convertible in all jurisdictions. Converting large sums into ISK can attract unfavourable exchange rates, and rates can move materially between offer acceptance and completion. Engaging a reputable currency specialist and considering forward contracts to lock in exchange rates is advisable.
• Linguistic barriers: While English is widely spoken in Iceland, certain legal documents and administrative procedures are conducted in Icelandic. Working with professionals who can provide accurate translations and clear explanations is therefore essential.
• Penalty for late registration: Documents subject to stamp duty must be registered within two months of signing. Where this deadline is missed, a stamp fine is levied, which can amount to up to 10% of the original stamp duty in addition to the duty itself.

Can I buy property in Iceland through a company, and is it worth doing?

It is possible to acquire property in Iceland through a corporate entity. This route is often chosen for reasons of tax planning, asset protection, or commercial purpose. The most commonly used vehicle is an Icelandic limited liability company (Einkahlutafélag, or ehf.), which is the local equivalent of a private limited company.

However, the rules governing foreign ownership of Icelandic companies are stringent. Where a company has no members bearing unlimited liability for its debts, the company must be domiciled and have its legal venue in Iceland, and all directors must either be Icelandic citizens or have been domiciled in Iceland for at least five consecutive years. In the case of joint-stock companies, four-fifths of the share capital must be held by Icelandic citizens, and Icelandic citizens must exercise the majority of votes at general meetings.

The practical consequence is that using a wholly foreign-owned company to acquire Icelandic property is substantially restricted. Available structuring options include applying for ministerial exemptions, entering long-term leasehold arrangements, or using an EEA-incorporated entity with genuine operational substance; anti-avoidance provisions will look through arrangements that lack commercial reality. For buyers with a genuine commercial rationale — such as operating a tourism business or managing a portfolio of rental properties — a properly structured Icelandic entity may offer tax and administrative advantages, though the compliance demands are considerable.

From a tax perspective, stamp duty of 1.6% of the property valuation applies where the buyer is a legal entity, as opposed to 0.8% for an individual — a meaningful additional cost. Corporate ownership may also complicate inheritance planning and eventual disposition of the asset. Independent legal and tax advice from qualified professionals in both Iceland and your home jurisdiction is essential before proceeding with any corporate purchase structure.

What taxes and ongoing costs should I budget for when owning property in Iceland?

Property buyers in Iceland pay stamp duty and government registration fees, with total associated costs typically falling between 0.9% and 3.4% of the purchase agreement value. The following table provides an overview of the principal taxes and costs to anticipate (all figures as of 2025 — verify current rates with official sources or a qualified adviser):

Real estate taxation in Iceland encompasses three principal categories: municipal property taxes, taxation of rental income, and capital gains taxation on disposal. Each municipality imposes an annual property tax calculated against the cadastral value of the property as determined by the Housing and Construction Authority (HMS). This valuation is revised annually, with property owners notified at the start of the summer period.

For current rates and comprehensive guidance on tax obligations, consult the Icelandic Revenue and Customs (Skatturinn) official website and the Housing and Construction Authority (HMS).

What are the official sources I should consult when buying property in Iceland?

When researching a property purchase in Iceland, it is essential to consult official government and regulatory sources to verify the most current rules, fees, and procedures. Key resources include:

• Government of Iceland — Foreign Nationals’ Real Property Rights: The authoritative statement of legal rules applicable to foreign buyers. www.government.is/topics/foreign-nationals/foreign-nationals-real-property-rights/
• Registers Iceland (Þjóðskrá Íslands) — Land Registry: For title searches, encumbrance checks, and property registration. www.skra.is/english/
• Housing and Construction Authority (HMS — Húsnæðis- og mannvirkjastofnun): For property valuations, market data, and the cadastral values used in tax assessments. www.hms.is/en
• Icelandic Revenue and Customs (Skatturinn): For guidance on tax obligations, stamp duty, rental income tax, and capital gains. www.skatturinn.is/english/
• Ministry of Justice (Dómsmálaráðuneytið): For applications by non-EEA nationals seeking permission to purchase property. www.government.is/ministries/ministry-of-justice/
• Icelandic Bar Association (Lögmannafélag Íslands): To locate a qualified property lawyer. www.lmfi.is
• Statistics Iceland (Hagstofa Íslands): For official house price index data. www.statice.is
• Fasteignir.is: Iceland’s leading property listings portal, useful for current price research across regions. www.fasteignir.is
• Ísland.is — Registration of Documents: The official government portal covering registration fees and procedures. island.is/en/registration-of-documents

Frequently asked questions about buying property in Iceland

Can I buy property in Iceland without living there?

Foreign nationals who are not domiciled in Iceland, or who fall outside the European Economic Area, must obtain a permit from Iceland’s Minister of Justice before acquiring real estate. This means that non-EEA nationals who are not legally resident in Iceland cannot purchase property as a straightforward non-resident transaction in the way that is possible in markets such as Portugal or Cyprus. EEA nationals are also required to demonstrate legal domicile. The sole exception arises where the Minister of Justice grants specific authorisation — which requires the applicant to show a genuine, demonstrable connection to Iceland.

Do I need to be a resident to get an Icelandic mortgage?

The principal commercial banks — Íslandsbanki, Arion Bank, and Landsbankinn — together with the Housing and Construction Authority, extend mortgage lending to foreign nationals, but eligibility is heavily contingent on residency status, the stability of the applicant’s income, and their credit profile. While non-residents may be able to obtain mortgage finance, they face more demanding requirements and must provide a larger deposit, with loan-to-value ratios for non-resident foreign buyers generally falling in the range of 50% to 70%.

What is a kennitala and do I need one to buy property?

A kennitala is Iceland’s civil registration number, functioning in a similar way to a national insurance number or tax file number. It is required for all administrative, banking, and tax procedures in the country. Establishing legal domicile in Iceland requires holding a kennitala and being enrolled at Registers Iceland. It is an indispensable prerequisite for completing any property purchase.

Are there restrictions on buying agricultural land in Iceland?

Foreign nationals may generally own property in Iceland, but specific regulations govern the acquisition of agricultural land. Since July 2020, legislation has capped individual land ownership at a maximum of 10,000 hectares, with any acquisition beyond that threshold requiring special authorisation from the Minister of Agriculture. Prospective buyers of farmland or large rural holdings should obtain specialist legal advice and confirm the current rules directly with the Ministry of Industries and Innovation.

How long does it take to buy a property in Iceland?

Buyers should allow approximately three to four weeks from beginning a property search to completing title registration, assuming no complications arise. The timeline can vary significantly where permit approvals are required, particularly for non-EEA nationals. Permit decisions from the Ministry of Justice typically take from several weeks to a few months. Beginning any permit application at the earliest possible stage is therefore essential.

Can I rent out my property in Iceland as a short-term holiday let?

Yes, foreign property owners in Iceland may rent out their property, particularly in locations with strong tourist traffic. However, compliance with local short-term rental regulations is obligatory, and rental income is subject to Icelandic tax. From January 2025, apartments operated under a commercial licence for tourist accommodation are taxed as commercial properties, even where the land register continues to classify them as residential. The appropriate municipal licence must be obtained, and relevant safety and registration standards must be met.

Is there VAT on buying property in Iceland?

VAT (VSK) is not generally charged on the sale of existing residential property in Iceland. However, VAT may be applicable to newly constructed properties sold by a developer, and to professional services such as legal advice and estate agency. The VAT position on any specific transaction should be confirmed with your lawyer, as the rules can differ between new-build and second-hand sales, and between commercial and residential property.

What happens if I inherit property in Iceland?

Transfers of property on death are subject to inheritance tax on each heir’s individual share, generally levied at 10% above a substantial tax-free allowance, with a complete exemption for the surviving spouse. Where a property owner dies intestate, Icelandic statutory succession rules govern the distribution of the estate. Foreign heirs should be aware that their ability to retain ownership of inherited property may itself be subject to the same residency and domicile conditions that apply to direct acquisitions. Legal advice should be sought without delay upon becoming an heir.