Icelandic VSK for accommodation: when 11 % applies and when it does not

Accommodation in Iceland is taxed at the reduced VSK rate of 11 per cent. The standard rate is 24 per cent. The reduced rate covers the rental of hotel and guest rooms, cottages, hostels and campsites where the stay is shorter than one month, and it also covers food and drink, spa and sauna admission, guiding and organised tours. Businesses selling ISK 2,000,000 or less in a twelve-month period do not have to register for VSK at all. A stay longer than one month falls outside the accommodation rules entirely.

That paragraph is the whole answer. The rest of this article is about the five places where it stops being simple: what the reduced rate actually reaches, what does not, the one-month rule, the registration threshold, and the lodging tax that is not VSK at all.

What the 11 per cent actually covers

Most operators know the room is at 11 per cent. Fewer know how far the reduced rate reaches beyond the room, and the list is longer than the intuition suggests:

• Rental of hotel and guest rooms, cottages, fishing lodges and hostels, for stays under one month
• Campground and motorhome parking facilities
• Food and other goods for human consumption — including, unusually, alcoholic beverages
• Admission to baths, saunas and spa facilities
• Travel agency and tour operator services for services delivered in Iceland
• Passenger transport, including sightseeing, whale watching and horseback riding
• Self-employed guide services

The alcohol line is the one that catches people out, and it goes the friendly direction: a glass of wine served with dinner sits in the same 11 per cent bracket as the dinner and the room. Iceland is unusual in this. Software configured on the assumption that alcohol is always standard-rated will quietly overcharge VSK on every bar line, and the guest will never notice.

What stays at 24 per cent

The standard rate is the default: anything not on the reduced list falls into it. For a small property, the usual candidates are goods and services sold alongside the stay rather than as part of it — souvenirs and retail items at reception, equipment hire, laundry as a separate service, and meeting or conference facilities.

Two rates on one stay is therefore the normal case, not the exception. A guest who stays three nights, eats breakfast, uses the spa and buys a wool sweater on the way out has generated lines at both 11 and 24 per cent on a single invoice.

Where exactly the boundary sits for a particular add-on is worth confirming with your accountant once, in writing, per service you sell. The rule that matters for your software is simpler and does not change: the rate belongs to the line, never to the invoice.

The one-month rule

The reduced rate applies to accommodation let for less than one month. Once a stay runs past that, it stops being short-term accommodation and becomes a residential lease, which is exempt from VSK rather than reduced-rated.

For a hotel this is theoretical. For cabins, apartments and guesthouses it is not. Winter contractors, seasonal staff, film crews and researchers routinely book for six weeks, and the same unit that was 11 per cent in July is exempt in November.

The trap is that exempt is not the same as zero. Exempt sales do not carry output VSK, but they also affect what input VSK you may reclaim on that unit. This is not something to work out from a settings screen at the end of the period — it is a question for your accountant before you accept the booking, and a reason for your system to be able to mark a booking as long-stay rather than treating every night the same way.

The ISK 2,000,000 threshold

A business selling taxable goods and services totalling ISK 2,000,000 or less in any twelve-month period is not required to register for VSK. Above that, registration is mandatory.

Two things about this number are easy to get wrong. It is a rolling twelve-month figure, not a calendar year, so a strong summer can cross it in August rather than in December. And it is measured on turnover, not profit — the cost of running the cabins does not come off it.

For an owner with two units this is a real threshold rather than a formality, and it is worth knowing where you stand against it before the season rather than after.

The lodging tax is not VSK

Iceland charges a separate lodging tax on top of the VSK system, and it is levied per unit per night rather than per guest. Since 1 January 2025 the rates are:

• Hotels and guesthouses in licence categories II–IV: ISK 800 per lodging tax unit
• Campsites and motorhome parking: ISK 400 per lodging tax unit
• Domestic cruise ships: ISK 400 per lodging tax unit

A lodging tax unit is the sale of accommodation for up to one day, including the overnight stay, in premises with sleeping facilities let for periods under one month. Per unit, not per person: a room with four guests is one unit, and so is a cabin with one.

Operators register in the lodging tax register separately from VSK registration, and report on the same bimonthly settlement periods. The practical consequence for software is unglamorous but real: something has to count occupied unit-nights per period and produce that number without anyone rebuilding it from a calendar in a spreadsheet.

What this means for your invoices

Icelandic invoicing rules are strict in a way that is easy to satisfy with the right system and painful to satisfy without one. An invoice must carry the date, both parties' names and kennitala, the seller's VSK number, a description of what was sold with quantity and unit price, and the total — with the VAT stated separately or the price clearly marked as VAT-inclusive.

Where a price includes VAT, the tax is 19.35 per cent of the gross at the standard rate and 9.91 per cent at the reduced rate. If your prices are advertised inclusive of VSK — and for accommodation they usually are — these are the numbers your system should be using, not 24 and 11 applied to a gross figure.

Three further requirements are worth checking against whatever you use now:

1. Numbers are pre-assigned and consecutive. Gaps in the sequence have to be explained, so a cancelled invoice is retained as cancelled rather than deleted, and numbering is claimed by the system rather than typed by a person.
2. Each VAT rate is broken out separately, so the tax on the 11 per cent lines and on the 24 per cent lines is visible and calculated independently.
3. Records — issued and received — are kept for seven years from the end of the accounting year.

Settlement periods and deadlines

The standard VSK settlement period is two months: January–February, March–April, and so on. The return and payment are due one month and five days after the period ends, which puts the first deadline of the year on 5 April. Monthly and annual periods exist for businesses that qualify.

Lodging tax is reported on the same periods, which is convenient only if the two numbers come from the same source. If occupancy for the lodging tax is counted by hand while revenue for VSK comes out of the booking system, the two will eventually disagree, and reconciling them is a job nobody has time for in August.

Five questions for a software vendor

Ask these before the demo ends, not after the contract is signed:

1. Can one invoice carry both 11 and 24 per cent on different lines, with the tax calculated per line?
2. Are prices stored inclusive or exclusive of VSK, and does the system use 9.91 and 19.35 per cent when they are inclusive?
3. Are invoice numbers assigned by the system in a gapless sequence, with cancelled invoices retained?
4. Can it report occupied unit-nights per settlement period for the lodging tax return?
5. Can a booking longer than one month be handled differently from a short stay, rather than being taxed like every other night?

The fifth question is the one that separates systems built for Iceland from systems configured for it. Most software has a tax rate field. Fewer have a concept of a stay that changes tax treatment because of its length.

What VSK rate applies to accommodation in Iceland?

The reduced rate of 11 per cent applies to the rental of hotel and guest rooms, cottages, hostels and campsites for stays of less than one month. The standard rate is 24 per cent.

Is alcohol taxed at 11 or 24 per cent in Iceland?

Alcoholic beverages fall under the reduced 11 per cent rate, together with food and other goods for human consumption. This differs from most European countries, where alcohol is standard-rated.

When do I have to register for VSK in Iceland?

When taxable sales exceed ISK 2,000,000 in a twelve-month period. Below that figure, registration is not required. The threshold is measured on turnover over a rolling twelve months, not on profit and not on the calendar year.

What happens if a guest stays longer than one month?

The letting is treated as a residential lease rather than short-term accommodation. It falls outside the 11 per cent accommodation rules and is exempt from VSK, which also affects input VSK recovery on that unit. It is worth confirming the treatment with an accountant before accepting long bookings.

How much is the Icelandic lodging tax?

Since 1 January 2025, ISK 800 per lodging tax unit for hotels and guesthouses in licence categories II–IV, and ISK 400 for campsites and motorhome parking. A unit is one night of one accommodation unit, regardless of how many guests occupy it.

Does an Icelandic invoice have to show both parties' kennitala?

Yes. An invoice must show the names and kennitala of both seller and buyer, the seller's VSK number, a description of what was sold with quantity and unit price, the total, and the VAT — stated separately or with the price clearly marked as VAT-inclusive. Records are kept for seven years.

Sources

• Skatturinn — Value Added Tax: https://www.skatturinn.is/english/companies/value-added-tax/
• Skatturinn — Lodging tax: https://www.skatturinn.is/english/companies/tax-issues/lodging-tax/
• Skatturinn — Key rates and amounts 2026: https://www.skatturinn.is/english/individuals/key-rates-and-amounts/2026/
• Ísland.is — Taxes on goods and services: https://island.is/skattar-a-voru-og-thjonustu
• PwC Worldwide Tax Summaries — Iceland, other taxes: https://taxsummaries.pwc.com/iceland/corporate/other-taxes

Where Revoo fits

Revoo is a property management system and a booking website for independent hotels, cabins, guesthouses and apartments. Invoicing is adapted to the rules of the country the property operates in as part of the implementation — per-line tax rates, gapless numbering and the reports the tax return actually needs — rather than being a rate field in a settings screen.

We work with a small number of properties at a time, which is why there is no sign-up button on this site. If you would like to see whether it fits yours, the next step is a 45-minute conversation.

Last updated 8 September 2026. Rates and thresholds change. This article is general information, not tax advice — check the figures against Skatturinn before acting on them.