Iceland R&D Tax Credit

Program Overview

Iceland offers generous R&D tax incentives to innovation companies under Act No 152/2009. The tax credit is granted as a reimbursement of companies' paid income tax, encouraging research and development investment across Icelandic businesses.

Tax Credit Rates

Small and medium-sized companies (SMEs): 35% of actual R&D costs

Other companies (larger firms): 25% of actual R&D costs

Annual ceiling: ISK 1,100 million total actual costs

Outsourced cost limit: Up to ISK 200 million

How It Works

Mechanism: Reimbursement of paid income tax

Calculation: Percentage of actual R&D costs (35% or 25%)

Example (SME): ISK 10M R&D costs = ISK 3.5M tax credit (35%)

Example (Large): ISK 10M R&D costs = ISK 2.5M tax credit (25%)

Eligibility Requirements

Company type: Innovation companies operating in Iceland

Activity: Engaged in research and development

Tax requirement: Must have paid income tax to receive reimbursement

Cost documentation: Actual R&D costs must be documented

SME Advantage

Iceland is relatively more generous to SMEs than to large firms for R&D tax relief

10% higher credit rate for SMEs (35% vs 25%)

Encourages innovation among smaller companies

Application Process

Step 1: Document R&D activities and costs

Step 2: Apply through RANNÍS (Icelandic Centre for Research)

Step 3: Provide evidence of paid income tax

Step 4: Submit R&D cost documentation

Step 5: Receive tax credit as reimbursement

Impact and Performance

Iceland stands out as one of the OECD countries with the highest increase in total government support for business R&D between 2006 and 2020

Increase mainly driven by introduction of R&D tax incentive scheme in 2010

Successfully stimulated R&D investment across Icelandic industry

Contact Information

Administrator: RANNÍS (The Icelandic Centre for Research)

Website: en.rannis.is/funding/research/tax-deduction-for-research-and-development

Legal basis: Act No 152/2009