1 Introduction
Iceland, with its unique climate and natural resource advantages, has gradually become one of the key hubs for cryptocurrency mining. The cold climate offers excellent cooling conditions for mining equipment, while Iceland’s abundant and cheap electricity, coupled with its stable and friendly political policies, gives it a strong competitive edge in the field of crypto mining. As a safe haven for the crypto industry and a base for global miners, Iceland’s cryptocurrency tax system and regulatory developments are in the spotlight, and this article will delve into this topic.
2 Iceland’s Basic Tax System
- Overview
Iceland boasts a relatively friendly tax environment and a well-established tax system. In recent years, Iceland’s tax reforms have focused on simplifying the tax system, reducing tax rates, and expanding the tax base. Iceland has signed double taxation avoidance agreements with over 30 countries, including China, the United States, and the United Kingdom. Additionally, Iceland offers tax incentives to attract foreign investment, such as tax reductions, cash subsidies, training assistance, and land leasing. Iceland’s tax system is based on two levels: central and local taxation. At the central level, taxpayers are required to pay corporate income tax, national personal income tax, value-added tax (VAT), environmental and resource taxes, customs duties, accommodation taxes, and national television and radio fees. At the local level, taxpayers must pay municipal personal income tax, social insurance, municipal taxes, property taxes, stamp duties, inheritance taxes, and more. These taxes can be broadly categorized into direct and indirect taxes, with indirect taxes being the primary form of taxation in Iceland. Compared to other countries, Iceland’s tax system is characterized by its simplicity and effectiveness, which enhances its attractiveness to foreign investment and boosts the international competitiveness of local enterprises.
- Main Taxes
- Corporate Income Tax
All companies registered in Iceland are considered Icelandic resident enterprises. Foreign companies with branches in Iceland or under the effective management of Icelandic entities are also classified as resident enterprises. Resident enterprises are subject to corporate income tax based on their net income. According to the official announcement “2025 Tax Changes” released by Iceland’s Tax Administration (Skattabreytingar á árinu 2025), the standard corporate tax rate for joint-stock companies and limited liability companies is 20%, while partnerships and cooperatives, among other entities, are subject to a special tax rate of 37.6%.
- Personal Income Tax
Any individual who stays in Iceland for more than 183 days within a 12-month period is deemed a resident individual from the date of arrival and is liable for tax on their global income. Individuals temporarily staying in Iceland for 183 days or less are considered non-resident individuals and are only required to pay national and municipal income tax on income sourced from Iceland. Taxable income is calculated as wages minus pension fund premiums. Personal income tax rates are progressive. Furthermore, capital gains from non-commercial activities (such as dividends and interest) are taxed separately at a rate of 22%. Each individual is also entitled to a monthly personal tax credit of 68,691 Icelandic krónur, which is deducted from the calculated tax amount. Non-resident individuals are eligible for the same expense deductions as resident individuals.
- Value-Added Tax (VAT)
VAT is an indirect consumption tax levied on all stages of domestic commercial transactions and on the importation of goods and services. Domestic and foreign companies or self-employed individuals selling goods or services in Iceland must declare and pay VAT at a standard rate of 24% or a reduced rate of 11% (applicable in certain scenarios). Taxpayers are required to complete VAT registration for businesses. Upon registration, a VAT registration number and certificate will be issued. Notably, individuals and businesses selling labor and services exempt from VAT, as well as those with annual sales of taxable goods and services amounting to 2,000,000 Icelandic krónur or less within 12 months of commencing business activities, are exempt from VAT registration obligations. Moreover, Iceland implements policies of reduced rates or complete exemption from VAT on a series of goods or services, such as public transportation, healthcare operations, and the functioning of schools and educational institutions.
- Environmental and Resource Taxes
Iceland’s environmental and resource taxes consist of three types: fuel consumption tax, carbohydrate tax, and electricity and heat consumption tax. Fuel consumption tax is levied on energy fuels. The carbohydrate tax is imposed on liquid fossil fuels (i.e., natural gas, diesel, gasoline, aviation fuel, and petroleum gas). Companies granted licenses for carbohydrate research or processing, as well as those directly or indirectly involved in carbohydrate processing or distribution, are required to pay processing taxes and carbohydrate taxes. The electricity and heat consumption tax is a special tax collected from entities selling electricity or hot water at the sales stage. If annual sales amount to less than 500,000 Icelandic krónur, exemption from this tax is granted.
3 Iceland’s Cryptocurrency Tax System
- Overview of Cryptocurrency Taxation
Iceland has not yet established specific legal provisions targeting cryptocurrency taxation. Consequently, related matters are governed by the general provisions of Iceland’s tax law. The definition of “income” under Iceland’s Income Tax Act is broadly construed, encompassing any form of gain accruing to a taxpayer that can be monetarily assessed, unless explicitly exempted by law. Therefore, Iceland’s tax authorities impose taxes on cryptocurrency assets. Furthermore, based on Iceland’s definition of tax residents, Regardless of whether a related enterprise is domiciled in Iceland or a related individual is a permanent resident, they are subject to Iceland’s tax laws.
In different scenarios, tax treatment varies depending on the nature of the transaction. For example, capital gains from cryptocurrency transactions for individuals are taxed at a rate of 22%, while corporate profits from cryptocurrency are taxed at the standard corporate tax rate of 20%. Mining income is considered taxable income and falls under the category of operating revenue, subject to standard income tax rates. In this regard, Iceland’s tax authorities have pointed out that taxpayers primarily incur tax obligations in two scenarios: first, when receiving cryptocurrency, such as through mining or as wage payment in cryptocurrency by an employer; and second, when exchanging cryptocurrency for other forms of value, such as selling cryptocurrency, converting it to fiat currency, or making purchases with it.
- Receiving Cryptocurrency
- Cryptocurrency Mining
Cryptocurrency mining is typically regarded as a commercial activity. Cryptocurrency obtained through mining is subject to corporate or personal income tax as operating profit. Commercial mining operations are subject to cost deduction rules, allowing for the deduction of costs such as hardware depreciation, electricity expenses, and transaction fees. However, non-commercial, sporadic, and non-massive mining activities do not qualify as commercial mining and cannot deduct costs; their income is taxed as ordinary personal income. Additionally, Iceland has not yet imposed a special electricity tax on mining operations for electricity consumption or environmental impact.
- Receiving Cryptocurrency as Labor Compensation
When employers pay wages in cryptocurrency, they must convert the cryptocurrency to Icelandic krónur at the market value on the payment date and include it in the individual’s income. Tax withholding and remittance are required, with tax calculations aligning with those for fiat currency wages and subject to progressive tax rates.
- Gifted Cryptocurrency
Gifted cryptocurrency that does not exceed the conventional scope of gifting is exempt from tax, such as small gifts between friends and family.
- Exchanging Cryptocurrency for Other Assets
When cryptocurrency is used to exchange for other assets (goods, services, fiat currency, or other cryptocurrencies), a tax obligation is triggered. Common scenarios include selling cryptocurrency for fiat currency, exchanging between different cryptocurrencies, or purchasing goods or services with cryptocurrency. However, transferring cryptocurrency between wallets under the same user does not involve actual value exchange and thus is not taxable.
Cryptocurrency transactions under this category are divided into two types: non-commercial personal transactions and commercial transactions. The former is subject to capital gains tax at 22%, while the latter is taxed based on operating profit. The distinction between the two is based on the continuity of the transaction behavior, profit-seeking intent, and independence, i.e., whether the transaction frequency and scale resemble business operations, whether the primary purpose is to profit from price differences, and whether it constitutes independent financial activity. Transactions characterized by high-frequency trading or institutional investment will be deemed commercial transactions.
Regarding the calculation of specific capital gains, the formula “Cryptocurrency Capital Gain = Transfer Value - Acquisition Cost - Deductible Expenses” is followed. The transfer value is based on the actual market price of the cryptocurrency at the time of the transaction. The acquisition cost is the purchase price plus transaction fees when acquired through purchase, or the market value of the cryptocurrency at the time of generation when acquired through mining. Among deductible expenses, there is a loss offset rule, which allows annual losses of the same cryptocurrency to offset gains (e.g., BTC losses can offset BTC profits), but cross-cryptocurrency loss offsets are not permitted. Additionally, losses due to private key loss or wallet theft are not considered deductible losses.
4 Iceland’s Cryptocurrency Regulatory F uture and Development Trends
Currently, Iceland has not established specific laws for cryptocurrencies but instead regulates them through its existing financial system. The Financial Supervisory Authority (FME) and the Ministry of Finance oversee the crypto industry within their respective jurisdictions.
In 2018, Iceland introduced the “Virtual Currency Service Provider Rules,” requiring cryptocurrency exchanges and wallet providers to register with the Financial Markets Authority and to comply with anti-money laundering (AML), know-your-customer (KYC), and counter-terrorist financing (CTF) regulations. This marked the establishment of a basic regulatory framework for cryptocurrency businesses in the country. In 2019, the Icelandic Financial Supervisory Authority approved the country’s first cryptocurrency institution, Monerium, enabling it to provide electronic money services based on blockchain technology within the European Economic Area. This was seen as a significant breakthrough. In June 2023, the European Union officially released the Markets in Crypto-Assets (MiCA) Regulation, which came into full effect on December 30, 2024, and applies to all European Economic Area countries, including Iceland. MiCA provides detailed regulations on the definition of crypto assets, access permits for issuers and service providers, and their operational management. As a signatory member, Iceland’s cryptocurrency regulatory system aligns with MiCA and the EU standards. This move is also expected to play a key role in facilitating the compliant conduct of cross-border crypto businesses in Iceland’s future.
The energy consumption and environmental impact of crypto mining in Iceland have gradually drawn the government’s attention. In March 2024, the Icelandic Prime Minister expressed a desire to reduce crypto mining activities in the country. As a result, it is anticipated that Iceland will shift its focus from crypto mining to the broader blockchain industry. Meanwhile, Iceland has shown interest in central bank digital currencies (CBDCs). The central bank views CBDCs as a viable alternative to traditional payment systems. The feasibility of CBDCs depends on their specific design, and like many other countries, Iceland’s assessment of CBDCs is ongoing. In the future, Iceland may take more institutional initiatives in this area.
5 Summary
Iceland adopts a relatively lenient and friendly approach to the regulation and standardization of cryptocurrencies, securing a significant position in the global cryptocurrency trading and mining markets. In return, the cryptocurrency industry has brought substantial investment to Iceland, even contributing to the country’s economic recovery following the 2008 bankruptcy crisis and playing an active role in its economic development. In recent years, the Icelandic government has supported the growth of the cryptocurrency economy within its borders, with regulatory measures focused on preventing illegal financial activities. On one hand, the government is likely to continue prioritizing this focus, strengthening international cooperation in combating financial crimes, and promoting the healthy development of the cross-border crypto industry. On the other hand, the environmental and resource impacts of crypto mining have already garnered the government’s attention. As the industry undergoes upgrades or transformations, Iceland may explore new avenues, presenting both opportunities and challenges for crypto enterprises.