Different taxation rules apply to posted workers in regards to whether they are employees of a Foreign Service provider or an foreign temporary work agency.
Posted workers of a Foreign Service provider are liable to pay tax on income in Iceland.
If the Foreign Service provider has an exemption from tax on the basis of a Double Taxation Convention, employees of the service provider are exempt as well if their stay does not exceed 183 in each 12 month period. Included are brief sojourn abroad on account of holidays etc. If the stay exceeds 183 days they have an unlimited tax liability and are liable to pay tax on total income earned in Iceland from the first day.
If a foreign service provider carries on business in Iceland through a permanent establishment, their employees are liable to pay tax in Iceland regardless of duration of their stay. Their tax liability may be limited or full and unlimited.
Personal tax credit is deducted from calculated taxes. Persons dwelling temporarily in Iceland for work are entitled to personal tax credit for each day they dwell in Iceland.
Employees of a foreign temporary-work agency working in Iceland are liable to pay income tax on their salary.
Iceland Revenue and Customs