Your complete guide to tax free shopping in Iceland

If you’ve travelled internationally then it’s very likely you’ve seen signs relating to tax free shopping. Perhaps you’ve noticed them in shop windows or maybe as you’ve been passing through the airport on your way home. But what is tax free shopping and should you be taking advantage of it? How does it relate specifically to Iceland? What do you need to do to make savings on the cost of your purchases? Let’s take a deep dive into everything you need to know with this complete guide to tax free shopping in Iceland.

What does tax free shopping mean?

Tax free shopping is a way for international tourists to secure certain goods while they are abroad. Unlike local residents, who must pay value-added tax (VAT) or sales taxes, if you live elsewhere you may qualify for discounts off the price of eligible purchases. The conditions of Regulation No. 1188/2014 have to be met. We’ll tell you more about that later on in this guide.

Such taxes are often used by national governments and local authorities to raise revenue to pay for services for the resident population. You could argue, therefore, that it isn’t fair for international visitors to be expected to contribute to these funds as they are unlikely to see much – if any – benefit from the projects on which they’re spent.

Is tax free shopping the same as duty free shopping?

Not exactly: as the name implies, duty free means that no taxes are added to the price of the item. They’ll not only be VAT-free, but also any excise taxes that might be applied when shopping in regular stores won’t be applied either. That’s why you’ll often be able to achieve significant savings on items such as alcohol, perfume and cigarettes which typically attract high rates of duty.

Nevertheless, in an age where it’s common for retailers to heavily discounts goods in seasonal sales or as loss-leaders, you shouldn’t assume that just because an item is on sale in an airport duty free shop it is automatically cheaper than elsewhere. In addition, the variety of goods on offer is often quite limited, so you may wish to select from a wider range before your departure.

But getting back to tax free shopping, what rate of VAT does Iceland levy?

In Iceland, the standard rate of VAT is 24%. This is high in comparison to some other countries, though not all, and it also has a lower rate, 11%, when you buy food and books. For instance, in countries such as the UK, France, Germany and Italy VAT is charged at a lower rate; if you are from the US, factor in your state and local sales taxes for a comparison.

As with duty free purchases, it’s always essential to do some research beforehand. Find out whether you can buy the item at home and if so, whether it’s cheaper or more expensive than in Iceland.

So why would a country offer VAT refunds if they stand to lose out?

One line of thinking goes like this: by offering the chance for international visitors to secure a discount after they’ve made a purchase, you’re enticing them to spend more. As not all tourists bother to claim their refund, especially if it’s a relatively small amount, then the local economy benefits again. Even small amounts add up, so the revenue gained can be considerable. Of course, as you either offer the VAT refund or you don’t, it’s impossible to know whether those visitors would have spent the money regardless.

How does this tax refund work?

Depending on what you buy and where, sometimes you might be given the discount at the point of sale. In other circumstances, you’ll need to keep your receipts. Later, for instance at the airport, you need to present these receipts at VAT refund desks or at self-service kiosks. It can also be possible to apply for your refund online. According to Skatturinn, Iceland Revenue and Customs, in order to secure a VAT refund:

“All non-Iceland residents are tax free eligible. The minimum amount on one single purchase receipt must be ISK 12,000. The original purchase receipts must be attached to the tax free form. The retailer signature must be on the tax free form.”

So can you only claim a VAT refund on items costing ISK 12000 or more?

No, that’s not the case. If you read the wording carefully, the meaning is clear: The purchase price must be over ISK 12000. However, this figure can comprise multiple items so long as they are all on the same receipt. If you might normally shop on and off throughout your stay or at different stores, it might pay you – literally – to do all your shopping at once and in the same shop. Also it’s important to remember that the goods you are claiming for have to be unused and services are not included.

The other thing to remember, particularly if you are lucky enough to have been taking an extended vacation in Iceland, is that the goods you have bought have to be taken out of the country within three months of purchase. To ensure the goods are actually taken out of the country, the tax free forms that international visitors fill in have to be validated at the point of departure. Usually this means doing so at a customs desk or bank at the airport.

So do you need to do anything as you shop?

In short, yes. If you don’t prepare the paperwork, you wo0n’t be able to complete the process. In practice, this means that at the time you buy eligible items at a store in Iceland, you need to ask in that shop for a tax free form. The assistant should fill in their part of the form and will attach your till receipts to it.

And what about at the airport – what happens there?

You need to keep this form safe and – importantly – don’t place it in your checked luggage. In fact, don’t check in your luggage until you’ve claimed your VAT refund as it may need to be inspected. If you intend to do this, make sure you allow enough time to walk through to the desk and complete the paperwork before returning to departures to complete check-in and/or bag drop in plenty of time to clear security and still make your flight.

So here’s how it works. When you arrive at the airport, if you intend claiming for purchases between ISK 12000 and ISK 100000, you need to take the receipts and the form to the VAT refund desk to get it stamped and validated. As you would expect, purchases over a value of ISK 100000 come under closer scrutiny and therefore these are looked at by customs officials.

Make sure you find the right desk

Even though you apply for the money back on departure, you’ll see the VAT refunds desk at Keflavik Airport in the arrivals hall opposite the car rental desks; look for the Change Group sign. There’s a map here if you want to be sure you’ll find the right place. If this customs desk is closed, then you can do the necessary paperwork at the foreign exchange desk.

Note that you’ll need to be able to prove you are a permanent resident of a country outside Iceland. To do so, you’ll be asked to present your passport or approved photo ID. You may need to answer certain questions to satisfy the assistant that you don’t live in Iceland. That’s because foreigners with permanent residence in Iceland are not entitled to VAT refunds.

This information will be verified by the assistant; without this step you won’t be able to secure your refund, so make sure you have the document to hand. Once you have done so, you need to present your stamped form at the International Refund Point. This is where you’ll be issued your refund.

Can I still get a tax refund if I’m not flying out of Iceland?

While the majority of international visitors to Iceland arrive and depart by air, a smaller number come on the ferry. The good news is that if you are heading out of Iceland from the port at Seyðisfjörður in East Iceland, so long as you meet the criteria we have outlined in this article, you can still get your refund authorised. The main office is inside the ferry terminaland is clearly signed. In smaller airports, particularly where international flights are relatively recent development, there might only be a designated post box in which to deposit your form. It’s worth asking on arrival if you intend to make a claim.

So that concludes our guide to tax free purchases in Iceland. Now you can spend your money with the knowledge of whether you might get a little of it back and be fully prepared to meet the requirements and follow the necessary procedures. Happy shopping!