Not yet law: Iceland's 2027 budget bill would cut the residential-construction VAT refund from 35% to 20%
This change is proposed and is not law. The rules below describe what would change if it is adopted.
This page records one dated change. For the rules in Iceland as they stand today, see the Iceland guide →
- Jurisdiction
- Iceland
- Tax
- VAT
- Change type
- Update
- Status
- Proposed
- Impact
- Watch
- Announced
- 1 September 2026
- Authority
- Fjármála- og efnahagsráðuneytið (Ministry of Finance and Economic Affairs)
- Verified
- Fetched from official source · high confidence
Individuals and businesses claiming the VAT refund on on-site labour for residential housing construction in Iceland — if the proposal is enacted.
No action — monitoring only.
Iceland's budget bill for 2027 proposes to reduce the refund of VAT on on-site labour for construction of residential housing from 35% to 20%, with an estimated revenue gain of ISK 3.6 billion. The budget bill does not itself amend the VAT Act or set a commencement date; that requires separate legislation.
What changed in detail
This is not yet law. Iceland’s budget bill for 2027 proposes to reduce the refund of VAT on on-site labour for the construction of residential housing from 35% to 20%. The Ministry of Finance and Economic Affairs estimates the change would raise ISK 3.6 billion in revenue. As with the rest of the budget bill, this does not itself amend the VAT Act or set a commencement date — that requires separate legislation.
What it means
This is one line item in the same budget bill that proposes moving bathing lagoons to the standard VAT rate — both are revenue measures signalling the government’s direction, not enacted changes. Builders and buyers currently relying on the 35% labour-cost refund should treat 20% as the government’s proposed floor rather than a confirmed number, and watch for the VAT Act amendment that would actually change the refund rate.
Proof
Hins vegar er lagt til að endurgreiðsla VSK af vinnulið framkvæmda við íbúðarhúsnæði verði lækkuð með því að færa endurgreiðsluhlutfallið úr 35% í 20%.On the other hand, it is proposed that the VAT refund on the labour portion of residential housing construction be reduced by lowering the refund percentage from 35% to 20%.
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