Summary
- Iceland’s proposed 2027 Budget would move admission to lagoons and steam baths from the reduced 11% VAT rate to the standard 24% rate.
- The Budget would also reduce the VAT refund for labour costs connected with residential construction, maintenance and renovation from 35% to 20%.
- Fixed excise duties and charges would generally be adjusted by 5.2%, including duties on alcohol, tobacco and nicotine products, carbon taxes, accommodation taxes and vehicle-related charges.
Extended article
Iceland’s Ministry of Finance has presented its 2027 Budget, including two significant changes to the VAT treatment of tourism and residential construction.
The first proposal would remove the reduced VAT rate for lagoons and steam baths. Admission would move from the current 11% rate to Iceland’s standard 24% rate. The government considers the reduced rate difficult to justify compared with the treatment of other service sectors.
The second proposal would reduce the VAT refund available for labour costs connected with residential construction, maintenance and renovation from 35% to 20%. This would reduce the tax support available for qualifying residential work.
The Budget also proposes indexing fixed taxes and charges by 5.2%. The adjustment would affect alcohol, tobacco and nicotine duties, carbon taxes, accommodation taxes, infrastructure charges, vehicle-related charges and kilometre tax.
Businesses should note that these are Budget proposals rather than final enacted measures. Tourism operators would need to update pricing and VAT determination if the lagoon and steam-bath proposal becomes law.
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