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10.1. Specific Incentives

R&D Incentive

Iceland provides a special corporate income tax deduction equal to 20% of expenses for R&D projects incurred by qualifying R&D companies. The maximum amount of expenses on which the deduction is calculated may not exceed ISK 600 million per operating year, although, for purchased R&D services from an unrelated party for its own benefit and use in an already approved R&D project, the cap is ISK 900 million.

COVID-19 Emergency Measures

In response to the COVID-19 pandemic, effective 22 May 2020, Iceland provided an increase in the tax deduction of R&D expenses as follows:

  • 25% for 2019;
  • 35% for small and medium enterprises for the tax years 2020, 2021, and 2022; and
  • 25% for large companies for the tax years 2020, 2021, and 2022.

Iceland also increased the cap on expenses from ISK 600 million to ISK 900 million for 2019. For the tax years 2020 and 2021, the cap is increased to ISK 1.1 billion and companies are allowed to include up to ISK 200 million in purchased R&D services. For the tax year 2022, the cap on expenses is reduced from ISK 1.1 billion to ISK 1.0 billion.

For the purpose of the tax deduction:

  • A small enterprise is a company with less than 50 employees and an annual turnover of less than EUR 10 million, or balance sheet below EUR 10 million;
  • A medium enterprise is a company with 50 up to 250 employees and an annual turnover of less than EUR 50 million, or balance sheet below EUR 43 million; and
  • A large company is a company with more than 250 employees.

Films and Television Programs Production Incentive

Reimbursement of up to 25% of production expenses is available for films and television programs produced in Iceland. Effective 15 June 2022, the reimbursement incentive is increased from 25% to 35% of production expenses if the following conditions are met:

  • The production cost in Iceland is at least ISK 350 million;
  • At least 50 employees/contractors are hired for a minimum of 50 working days, and the salary/ contract payments must be taxed in Iceland; and
  • The production in Iceland (including shooting/filming or post-production work) must last for at least 30 working days, with at least 10 working days of filming/shooting in Iceland.

When at least 80% of the total production cost is incurred in Iceland, the reimbursement also applies to costs incurred within the other EEA Member States. The reimbursement does not apply to the production of commercials or music videos. The request for reimbursement must be filed within 6 months from the end of the production of the film or television program.

In order to qualify for the reimbursement incentive, an application, together with supporting documentation, must be submitted to the Ministry of Industry prior to commencing production. Conditions for approval include:

  • A company should be established in Iceland for the production, or a branch or agency of company registered in another EEA Member State;
  • All taxes and debts in Iceland must have been paid;
  • An itemized estimate of the production costs should be provided along with confirmation of the funding parties;
  • Information about the subject/content of the production must be made available;
  • The production should promote Icelandic culture and the history and nature of Iceland; and
  • The content material to be produced should be intended for general distribution to cinemas or television stations.

The reimbursement incentive is available up to 31 December 2025.