Iceland – Property Letting

How does the property letting process work in Iceland?

Residential rentals of a long-term nature in Iceland are regulated under Rent Act No. 36/1994, which sets out the minimum entitlements and duties of both landlords and tenants. The letting process typically begins with advertising the property — usually through online platforms and estate agents — before moving on to choosing a tenant, preparing the tenancy contract, carrying out an initial condition inspection, and formally recording the lease in the national register.

Every tenancy agreement must be committed to writing and signed by both parties. While Article 4 of the Rent Act stipulates that leases should be in written form, Article 10 clarifies that an oral agreement carries the same legal weight — meaning a tenancy relationship can be recognised by law even without documentation. Nevertheless, putting everything in writing from the outset is strongly recommended, and all communications that could affect the rights or obligations of either party should be documented throughout the duration of the tenancy.

Under the law, a written lease must be registered in the HMS Rent Register and must specify the amount of rent, when it falls due, and the method of payment. It must also include a condition and fire safety report, completed jointly by the landlord and tenant rather than by an external professional, which serves as a vital reference if any disagreements arise later.

Two principal forms of tenancy exist in Iceland: fixed-term leases, agreed for a defined period such as six months or a year, which expire automatically on the agreed date; and indefinite-term leases, which have no predetermined end date and run until either party brings them to an end. In practice, indefinite-term arrangements are by far the more common form of residential tenancy.

One notable aspect of Icelandic tenancy law is that if a tenant remains in occupation more than eight weeks beyond the expiry of a fixed-term lease without the landlord requesting their departure, the agreement is deemed to have converted automatically into an indefinite-term lease. Landlords must therefore act promptly at the conclusion of any fixed-term arrangement to avoid this outcome. The Government of Iceland housing page and Ísland.is offer further practical guidance and access to standard lease templates.

The Ministry of Social Affairs makes standard lease templates available in multiple languages, which is particularly helpful for overseas landlords or tenants who are unfamiliar with Icelandic legal conventions. In contrast to certain common-law jurisdictions where the precise wording of lease clauses is largely left to the discretion of the contracting parties, any provision in an Icelandic tenancy agreement that offers the tenant less protection than the statutory minimum is liable to be disregarded if it is challenged.

What types of rental arrangements are available in Iceland — long-term, short-term, and holiday lets?

Icelandic law draws a firm distinction between long-term residential lettings governed by the Rent Act and short-term or holiday accommodation, which is subject to a separate licensing framework. This distinction carries important consequences for taxation, licensing obligations, and day-to-day operational requirements.

In Iceland, short-term rentals generally refer to furnished accommodation let for fewer than 90 days, often within private homes or investment properties. Platforms such as Airbnb and Booking.com host a large number of Icelandic listings, and the short-term rental market has expanded significantly — particularly in and around Reykjavík — driven by sustained growth in tourism.

Legislation enacted by Parliament prohibits properties classified as long-term residential housing from being listed on short-term rental platforms such as Airbnb. Introduced in 2024, this restriction was designed to safeguard the availability of permanent housing stock and establishes a clearer legal boundary between residential and commercial accommodation use.

For properties that are lawfully eligible for short-term letting, Iceland operates a “homestay” (heimagisting) model. Under this arrangement, eligible property owners may let their units for a maximum of 90 days per year and earn up to ISK 2,000,000 annually (as of 2024). All short-term rentals must be registered, and licences are subject to annual renewal.

Applications for homestay registration are usually processed within a few days, with confirmation sent by email. Each registration covers the full calendar year and must be renewed before the start of the following year if letting is to continue. Operating without registration can result in an administrative penalty of up to one million krónur per offence.

There are currently no nationwide limits on the minimum or maximum length of a guest’s stay within a short-term rental, provided the total number of letting days per year does not exceed the permitted threshold. That said, local authorities in Reykjavík, Akureyri, and other municipalities may have introduced their own additional restrictions to mitigate the impact on local housing markets. It is always advisable to check current rules with the relevant municipal authority before advertising a property on any short-term rental platform.

What rental income can landlords expect in Iceland, and how are rates set?

Icelandic landlords and their tenants are broadly free to agree on the level of rent when a tenancy commences. No state-imposed rent ceilings or mandatory price controls govern the initial rental amount, giving both parties room to negotiate. This places Iceland in a notably different position from countries such as Germany or Ireland, which have introduced formal rent pressure zones or statutory controls in response to housing affordability pressures.

The rental index for the capital region recorded an annual rise of 11.4% in early 2025, a rate substantially higher than general inflation, reflecting the ongoing strain on Iceland’s housing supply. With a total population of around 390,000 and roughly two-thirds of residents concentrated in the greater Reykjavík area, demand for housing consistently outstrips supply across much of the country, particularly in the capital region.

The lease must state the agreed rent, the date on which it is payable (usually the 1st of the month, payable in advance), and the basis on which the rent may be adjusted over time — for instance, by reference to an inflation index. Indexation of rent to the consumer price index is a widespread practice in Icelandic tenancy agreements, and landlords should ensure the indexation formula is explicitly set out. In circumstances where the landlord’s operating costs rise significantly, it may be possible to seek a rent review.

Most Icelandic rental properties do not include electricity or heating within the rent, though some landlords choose to offer a single all-inclusive figure. Iceland’s extensive geothermal heating infrastructure keeps domestic heating costs relatively low, although electricity costs can be meaningful — especially through the winter months. Landlords should set out utility responsibilities clearly in the tenancy agreement. For up-to-date market rental data across Reykjavík and other regions, the Housing and Construction Authority (HMS) publishes figures drawn from its Rent Register, and the Consumers’ Association of Iceland provides guidance for both landlords and tenants.

Do landlords need to provide a furnished or unfurnished property in Iceland?

There is no statutory obligation in Iceland for landlords to let a property in furnished condition for long-term residential tenancies. Both furnished and unfurnished arrangements are encountered in the market, and the terms are for the parties to agree and record in the lease. In practice, local customs around furnishing tend to vary by property type and the location of the letting.

Regardless of whether the property is let with or without furniture, the landlord is obliged to ensure the dwelling is in a habitable and properly maintained condition at the point of handover. This duty extends to fixtures and equipment forming part of the property — including plumbing, electrical installations, windows, doors, and any built-in appliances. Where a landlord provides additional furniture or freestanding appliances, those items also become the landlord’s maintenance responsibility.

For short-term and holiday lettings, the position is different. Properties marketed on short-term rental platforms in Iceland are almost invariably presented in a fully furnished, guest-ready condition, and platforms such as Airbnb and Booking.com expect this as standard. The degree of furnishing may also be relevant to determining whether a property falls within the homestay category or is considered commercial accommodation, which carries further licensing requirements.

Landlords who let a furnished property on a long-term basis are advised to prepare a detailed inventory and attach it to the condition report completed at the start of the tenancy. This creates a clear record of the state of the property and its contents, which can be decisive if any dispute arises at the end of the letting period.

Do you need a licence or registration to let a property in Iceland?

Long-term residential letting does not require a dedicated landlord licence of the kind found in parts of the UK or Ireland, where landlords must formally register with a regulatory body. However, registration of tenancy agreements in the HMS Rent Register is now a legal obligation. From 1 January 2026, this requirement applies to all landlords without exception. The register captures details including the type of property, its location, the agreed rent, and the duration of the tenancy.

Landlords who let more than two properties are required by law to register their tenancy agreements in the Rent Register within 30 days of the lease being signed. Even those who let a single property are strongly encouraged to register, since registration enables the tenant to claim housing benefit entitlements and ensures that rental income is automatically recorded in the tax returns of both parties.

A distinct registration regime governs short-term and holiday lettings. Owners wishing to let their properties on a short-term basis must register with a central government database and, in many cases, obtain an operating permit before commencing any lettings. The Icelandic Housing Agency administers the national registry for short-term rental properties, verifying that each listing meets the required standards for safety, tax compliance, and community impact. Permits must be renewed on a yearly basis.

Since 2024, businesses are no longer permitted to advertise units classified as residential housing on short-term rental platforms such as Airbnb. Requirements may differ depending on the municipality, the type of property, and whether the letting is classified as a homestay or commercial accommodation. Landlords should review the official Ísland.is homestay page and consult their local municipality for the most current requirements.

How do you obtain a landlord licence or register as a landlord in Iceland?

The registration process differs according to whether you are recording a long-term tenancy in the HMS Rent Register or seeking a short-term homestay (heimagisting) permit. Both procedures are outlined below.

Registering a long-term tenancy in the HMS Rent Register

1. Draft and sign the lease: The landlord drafts and signs the lease electronically, and the tenant then signs it electronically.
2. Complete a condition and fire safety inspection: An inspection must be made by the parties of the condition of the rental unit, including fire safety, with the results recorded in the appropriate section of the lease.
3. Submit for registration: The lease is registered automatically in the Rent Register when completed electronically. Electronic leases are free of charge for both the tenant and the landlord, except if the landlord chooses to buy the service from a registration agent, in which case the landlord pays.
4. Paper submission (if applicable): A signed lease can also be submitted on paper for registration in the HMS Rent Register by fee. For this, all parties to the lease must sign it, plus two witnesses. Registration of a lease on paper costs ISK 2,700 (as of September 2024).
5. Confirm registration: If the lease is on paper, it may take several days from the day HMS receives it to be registered in the HMS Rent Register. Electronic registration is near-instant.

Applying for a homestay (short-term rental) permit

1. Check eligibility: Establish that the property is not classified as long-term residential housing, since such properties cannot be used for short-term letting. Applicants are not required to be the registered owner but must satisfy the domicile criteria set by the relevant authority.
2. Prepare documentation: Gather the necessary supporting materials, which typically include proof of ownership, a zoning compliance certificate, and where required, a local municipal permit. Evidence of compliance with safety requirements — such as the presence of smoke detectors and fire extinguishers — and confirmation of property insurance will also be required.
3. Submit application: Lodge an application through the Icelandic Housing Agency’s online portal. Applications can be submitted via Ísland.is.
4. Pay the registration fee: Fees for permits vary by municipality and property type but generally range from ISK 20,000 to 60,000 (check official sources for current figures, as fees may have changed).
5. Receive confirmation: Processing of applications generally takes a few days and an answer is received by email.
6. Renew annually: The registration must be renewed each year if letting is to continue, and renewal must be completed before operations resume for the new year.

What are the rules around deposits in Iceland?

It is standard practice for a landlord to require a security deposit from the incoming tenant before releasing the keys to the property. The deposit serves as financial protection for the landlord against unpaid rent or damage caused during the tenancy. Iceland does not operate a statutory deposit protection scheme of the kind found in the UK or Ireland, where deposits must be lodged with a government-approved custodian. Instead, the Rent Act sets out specific rules governing how deposits are to be held and returned.

The deposit must be placed in a dedicated, unrestricted bank account at a commercial bank or savings bank, earning the best available interest rate. Although funds may be drawn upon to cover unpaid rent or other liabilities arising under the tenancy, the account must otherwise remain intact. Any interest that accumulates on the deposit ordinarily benefits the tenant.

In practice, landlords typically request a deposit equivalent to two or three months’ rent. Where the landlord also requires a third-party surety bond or insurance policy, the total security demanded across all forms combined may not exceed three months’ rent under the tenancy agreement.

After the property has been vacated and returned, the landlord has four weeks under the Tenancy Act within which to bring any valid claim against the deposit. If no legitimate claim is made within that window, the full deposit together with any accrued interest must be refunded to the tenant. Landlords are strongly advised to conduct a thorough check-out inspection and record the condition of the property at the end of the tenancy, using a report that mirrors the one prepared at the outset. For current rules and any recent legislative developments, refer to the Consumers’ Association Renting Helpline or the official Ísland.is residential letting page.

Who is responsible for maintenance and repairs in Iceland?

As a general rule, the landlord bears responsibility for all upkeep of the rented premises, both internally and externally. Minor day-to-day tasks — such as replacing light bulbs, clearing blocked drains, or tightening loose fittings — are exceptions to this general rule and fall to the tenant. This allocation of responsibility broadly mirrors the approach taken in most European jurisdictions, though it is worth agreeing clearly in the lease where the boundary between significant and minor repairs lies.

The parties do have some latitude to agree that particular internal maintenance tasks will be the tenant’s responsibility. Any such arrangement must be clearly defined in the lease. Absent a specific contractual term of this kind, the landlord is responsible by default for all substantial maintenance and repair work.

The landlord’s duty encompasses the upkeep of all fixtures and fittings that form part of the let, including plumbing systems, electrical installations, windows, doors, and appliances. If a landlord receives written notification of a defect but fails to address it, the tenant may, after four weeks without a response, seek the endorsement of an independent assessor to commission the repairs themselves and offset the cost against rent. Should eight weeks pass without the landlord acting, the tenant may be entitled to bring the tenancy to an end.

Tenants are expected to use the property in a way that is consistent with its intended purpose and in accordance with generally accepted standards of care. They must also promptly notify the landlord of any defect or repair need that comes to their attention. Where a tenant, a member of their household, or a visitor causes damage to the property and fails to put it right, the landlord may arrange for repairs to be carried out at the tenant’s expense following an assessor’s report.

Real estate taxes, annual utility charges, and contributions to the housing fund are generally the landlord’s responsibility. When disputes arise between landlords and tenants, these can be referred to the Housing Appeals Committee (Húsnæðismálaráðuneytið) or resolved through the courts.

How are letting agents used in Iceland, and what do they charge?

Letting agencies and property management firms operate across Iceland, with a particular concentration in Reykjavík and the broader capital region. Their services typically encompass advertising the property, screening prospective tenants, preparing tenancy agreements, carrying out condition inspections, collecting rent, and coordinating ongoing maintenance. For landlords who are based abroad, engaging a local agent or property manager is often not just convenient but practically essential.

Unlike the UK, where the Tenant Fees Act 2019 abolished most letting agent charges levied on tenants, or Germany, where the “Bestellerprinzip” requires the party who engages the agent to pay the fee, Iceland has no statutory prohibition on agents charging tenants. Fee arrangements are largely a matter of negotiation between the landlord and the agent. Landlords should establish clearly in any management agreement whether any element of the agent’s fees will be recovered from tenants, and if so, ensure this is transparently set out in the lease.

Property management charges in Iceland are generally expressed as a percentage of the monthly rent, which is broadly consistent with practice in other Scandinavian countries, though specific rates should be confirmed directly with individual agents since there is no publicly regulated fee schedule. As of 2025, no single official tariff governs letting agents in Iceland. Landlords are advised to seek itemised quotations from more than one agent and to check with the Consumers’ Association of Iceland or the relevant professional body for any available guidance on typical market rates and regulated structures.

Both landlords and tenants may authorise an agent to execute the lease on their behalf — a provision that is especially relevant for overseas property owners managing a letting remotely.

What taxes apply to rental income in Iceland?

Rental income is subject to capital gains tax at a headline rate of 22%. Where a landlord lets no more than two properties that fall within the scope of Icelandic residential rental law, 50% of the rental income is exempt from tax, which has the practical effect of reducing the effective rate to 11%. This is a material concession for smaller private landlords and is confirmed by the Icelandic Directorate of Internal Revenue (Skatturinn) for the 2025 tax year.

Rental income from residential properties is classified as capital gains where the landlord lets no more than two properties under Icelandic residential rental law. Where those conditions are satisfied, 25% of the rental income is exempt from tax and no deductions apply — consult the Skatturinn key rates page for 2025 for the most current figures, since these thresholds are reviewed annually.

Rental income is treated as income from a business activity unless it qualifies for one of the specific exemptions. If the total rental income from one or two properties exceeds ISK 2,000,000 during the tax year, or if the property is rented for more than 90 days in any calendar year, all rental income from those properties will be reclassified as business income and taxed at the general income tax rates rather than under the preferential capital gains treatment.

Where rental income exceeds ISK 2,000,000 per year, VAT must be charged on short-term rentals. For stays of 30 days or less, the applicable VAT rate is 11%; stays exceeding one month are not subject to VAT. Landlords who cross this threshold are required to register for VAT with the Directorate of Internal Revenue within 8 days of commencing rental business activity.

Non-resident owners of Icelandic property may be required to file an Icelandic income tax return and to declare any income derived from that property. Foreign owners are taxed on the same basis as residents. Real estate taxes are levied at the municipal level on the officially assessed value of the property, with rates varying between municipalities in the range of 0.18% to 1.60%. Non-resident landlords are strongly encouraged to seek advice from a local tax specialist and to consult the Directorate of Internal Revenue (Skatturinn) for current guidance.

What are the rules around ending a tenancy or evicting a tenant in Iceland?

Iceland’s approach to ending a tenancy is structured and weighted in favour of tenant protection, placing it broadly in line with Scandinavian norms while being more formally prescribed than many common-law systems, where informal notice or verbal communication may carry greater practical weight.

Indefinite-term leases are the most prevalent and legally favoured form of residential tenancy, offering the strongest protections for tenants. These arrangements continue until terminated by one of the parties in accordance with the statutory procedure. A tenant in an indefinite-term tenancy is entitled to bring the lease to an end on three months’ notice, unless a shorter period has been agreed in the contract.

Fixed-term leases run for a specified duration — such as six months or a year — and cannot ordinarily be ended early unless the lease expressly provides for this, or unless exceptional circumstances such as a material breach by one party apply. Where a fixed-term lease does include a provision for early termination, the required mutual notice period must be at least three months.

All notices to terminate must be given in writing and delivered in a manner that is verifiable — for example, by email or registered post. An electronically signed notice is treated as equivalent to delivery by registered mail. Landlords should retain clear records of all notices issued.

Eviction in Iceland is strictly a matter for the formal legal process. Landlords may not resort to self-help measures such as changing the locks, removing a tenant’s possessions, or otherwise coercing a tenant into leaving. Where a tenant refuses to vacate following a valid notice, the landlord must apply to either the courts or the Housing Appeals Committee for a formal order. A revised residential rental law was passed by the Icelandic Parliament in November 2025, and landlords should refer to the most current official sources to confirm that eviction procedures have not been altered under any amended legislation.

What should expat landlords know about managing property remotely in Iceland?

Letting an Icelandic property from overseas is legally permissible and reasonably well accommodated within the legal framework, but it calls for careful planning to ensure continued compliance with lease registration requirements, tax filing obligations, and maintenance responsibilities.

Where a landlord is unable to discharge their obligations — whether due to extended absence or illness — it is necessary to formally appoint a representative. Icelandic law allows both landlords and tenants to authorise an agent to execute the lease on their behalf, which is particularly relevant where the landlord resides abroad. The most practical approach to remote management is to grant a formal power of attorney to a trusted individual or to engage a licensed property management company based in Iceland.

Non-resident owners of Icelandic property may be required to submit an Icelandic income tax return and to declare rental income earned. The taxation of foreign property owners operates on the same basis as for residents, meaning overseas landlords cannot disregard their Icelandic tax obligations. Registering with Skatturinn and appointing a local accountant or tax adviser with experience in non-resident property income is strongly advisable.

Iceland does not currently impose a specific withholding tax on rental income remitted abroad by individual non-resident landlords, though the obligation to file tax returns remains in place. Non-resident landlords engaged in short-term letting whose income exceeds the ISK 2,000,000 annual threshold are required to register for VAT and comply with all associated reporting obligations, regardless of where they are based. Foreign individuals with accommodation income in Iceland are subject to the same VAT rules as Icelandic taxable persons.

There are currently no restrictions in Iceland on transferring rental income out of the country, consistent with Iceland’s membership of the EEA and EFTA. However, landlords must also satisfy any reporting or tax obligations that arise in their country of residence. Double taxation agreements may be relevant — this should be explored with both Skatturinn and a qualified tax adviser in your home jurisdiction.

Frequently Asked Questions

Can a non-resident own and let property in Iceland?

Yes. Non-residents are permitted to own and let property in Iceland. If you reside outside Iceland and earn income from an Icelandic property, you may be required to file an Icelandic income tax return. Foreign property owners are taxed on the same basis as residents. Non-residents should appoint a local representative or property manager and consult Skatturinn regarding their tax filing obligations.

Do I need a local agent to let my property in Iceland?

There is no statutory requirement to engage a local letting agent for long-term residential lettings. However, if a landlord is unable to fulfil their responsibilities owing to prolonged absence, appointing a representative becomes necessary. For landlords based outside Iceland, engaging a local agent or property manager is strongly recommended on both practical and compliance grounds.

How do I register a tenancy agreement in Iceland?

Under the law, tenancy agreements must be in writing and registered in the HMS Rent Register. Electronic registration is the simplest route — both parties sign digitally and no witness signatures are required. Electronic registration is free of charge for both landlord and tenant. If a paper lease is submitted instead, registration costs ISK 2,700 as of September 2024.

What is the maximum security deposit a landlord can charge in Iceland?

Landlords typically request a deposit of two to three months’ rent. Where the landlord also requires a third-party surety bond or insurance, the total security across all forms combined may not exceed three months’ rent. The deposit must be held in a dedicated, unrestricted bank account earning the best available interest rate.

Can I let my property on Airbnb in Iceland?

Legislation enacted in 2024 prohibits properties classified as long-term residential housing from being listed on short-term rental platforms such as Airbnb. Where a property does qualify for short-term letting, it may be rented for up to 90 days per year and earn up to ISK 2,000,000 annually (as of 2024). All short-term rentals must be registered, and permits are subject to annual renewal.

How is rental income taxed in Iceland?

Rental income is subject to capital gains tax at a headline rate of 22%. Where a landlord lets no more than two residential properties under Icelandic residential rental law, 50% of the rental income is exempt from tax, reducing the effective rate to 11% (as of 2024). If income exceeds ISK 2,000,000 or the property is let for more than 90 days per year, all rental income is reclassified as business income and taxed at general income tax rates. Always verify the current position with Skatturinn.

What notice must a landlord give to end a tenancy in Iceland?

Indefinite-term leases run until one party brings them to a lawful end following the required procedure. Where a fixed-term lease contains a termination clause, the mutual notice period must be at least three months. Eviction cannot be carried out through informal or self-help means — landlords are required to pursue the formal process via the courts or the Housing Appeals Committee.

Are there rent controls in Iceland?

At present, Iceland imposes no official rent ceilings or mandatory price controls on the initial amount of rent agreed at the start of a tenancy — landlords and tenants are free to negotiate the rent between themselves. Inflation-linked indexation of rent is nevertheless a common contractual feature in Icelandic leases. Landlords should monitor developments with the Housing and Construction Authority (HMS), as Icelandic housing legislation has been changing rapidly in response to ongoing market pressures.