Retiring in Iceland: Residence, Pension Taxation, the S1 Form and Cost of Living

Iceland is in the Schengen area: French nationals move freely for stays of less than three months with an identity card or a passport valid for the whole length of the stay. Anyone wishing to settle registers with the national register (Þjóðskrá); the French embassy’s “Settling in Iceland” guide details the procedure (France Diplomatie). Your Europe sums up the conditions for a European retiree: full health insurance and sufficient income to live without financial assistance.

• Amount of resources: the official pages consulted set no figure; the administration assesses each situation, and a pension statement eases the file.
• Permanent residence: after five years of legal, uninterrupted residence, the right of permanent residence is acquired; an absence of more than two consecutive years can cause it to be lost (europa.eu). The conditions specific to the European Economic Area should be confirmed with the Icelandic immigration directorate.
• Identification number: the personal number (kennitala) is assigned on registration with the national register and is used for banking, tax and health procedures.

The page on living in Iceland details the documents, natural hazards and registration with the consular register.

The convention between France and Iceland, signed in Reykjavik on 29 August 1990, approved by the law of 31 December 1991 and in force since 1 June 1992 (impots.gouv.fr), allocates the right to tax each category of income. A consolidated version, which incorporates the multilateral BEPS convention, is published on impots.gouv.fr.

• Private pensions and social security pensions (Article 18): subject to paragraph 2 of Article 19, pensions and similar remuneration paid to a resident of a State in respect of past employment are taxable only in that State. For a retiree resident in Iceland, these pensions therefore fall to Iceland; the French administration indicates that, where a convention contains no specific clause on social security pensions, the right to tax in principle goes to the State of residence (BOFiP). The return to be filed should be confirmed with the French and Icelandic administrations.
• Public pensions (Article 19, paragraph 2): pensions paid by a State or authority for services rendered to that State are taxable only in that State, unless the beneficiary is a resident of the other State and holds its nationality. A former French civil servant remains in principle taxed in France.
• Icelandic scale: the tax authority publishes every year the withholding tax rates on salaries, which are progressive depending on the monthly bracket; the rules applicable to a foreign pension and the personal tax credit should be checked with it (Skatturinn).
• French levies: with tax residence outside France, the health contribution of 3.2% (basic pension) and 4.2% (supplementary pension) applies to general scheme pensions, and 7.1% to those of the self-employed; with tax residence in France, the CSG, CRDS and CASA apply (CLEISS).

The guide on receiving your pension abroad details the payment of pensions outside France. Individual advice lets you check the returns to be filed in each country.

A retiree who receives only a French pension, settles permanently or for more than six months a year in a State of the European Economic Area and does not work there requests the S1 from their pension fund (the CNAV, the national old-age insurance fund, for the general scheme; the public finance directorate for foreign residents for State pensioners), preferably before leaving (CLEISS). Sjúkratryggingar specifies that the S1 certificate confirms insurance in the previous country of residence and, once requested, insures the person in the new country of residence (island.is).

• Residence period: CLEISS indicates that Icelandic health insurance requires legal residence of at least six months, counted from registration with the national register; how this fits with the S1 should be confirmed with Sjúkratryggingar before settling in, and international insurance or the CFE (the Caisse des Français de l’Étranger, the voluntary social security fund for French nationals abroad) can cover the period.
• No local contribution: CLEISS indicates that no contribution to the local scheme is withheld, as the French pension already bears levies.
• Care in France: the holder stays covered in France and can be treated there for any reason, under French rules (CLEISS).
• Patient share: monthly cap of ISK 25,198 for retirees and ISK 4,331 once the cap is reached; GP consultation free for retirees; dental care covered in full or in part for retirees (CLEISS, island.is).
• Care pathway: GP of free choice, free public hospital care; see the Icelandic healthcare system and the page on healthcare reimbursement.

To complement this with first-euro cover or wider access to private providers, Expavy helps you compare the options; see also the page on retirement insurance abroad.

Iceland is an expensive country: the French Treasury (Direction générale du Trésor) notes persistent inflation, driven in particular by housing prices, and a high key rate. The “Economic indicators” block on this page tracks inflation and the exchange rate continuously; a pension paid in euros is exposed to movements in the Icelandic króna.

• Housing: rents and prices vary widely between the Reykjavik area and the rest of the country; Statistics Iceland publishes the reference statistics.
• Health: a capped monthly patient share and a residence period before entitlement opens justify setting aside a budget; the guide on budgeting for health abroad helps put a figure on it.
• Currency: the Icelandic króna (ISK), with an exchange-rate risk for a pension paid in euros.
• Heating: the climate justifies an energy budget, to be asked about with the landlord.

Reykjavik concentrates health services, the Landspítali university hospital, the French embassy and international connections; Akureyri, in the north, has a French consular agency. The health centres in central Reykjavik are sometimes full: the availability of a contracted doctor should be checked before choosing a neighbourhood (CLEISS).

France Diplomatie describes good safety conditions, but natural hazards specific to the island: storms, volcanic eruptions mainly in the south and on the Reykjanes peninsula, regular earthquakes, roads that close quickly, air disruption at Keflavik. It recommends consulting safetravel.is before a journey, not going to the highlands alone and taking vitamin D supplements for long winter stays. A trial stay of a full season, winter included, before signing a long lease limits unpleasant surprises; learning Icelandic eases social life.

Periods completed in France and Iceland are added together to open entitlement: the guide on quarters worked abroad explains the aggregation. According to CLEISS, the statutory retirement age is 67. The system comprises a national pension and mandatory occupational pension funds.

• National pension: at least three years of residence in Iceland between ages 16 and 67; full rate after 40 years of residence; maximum of ISK 3,081,468 per year, with no minimum pension (CLEISS).
• Early retirement and deferral: application possible from age 65 with a reduction, or deferral up to age 80 with an increase (CLEISS).
• Occupational pension funds: with no minimum contribution period, they are paid from age 65 to 70, with some funds allowing age 60; the benefit is at least 56% of average insured income after 40 years of contributions (CLEISS).
• Supplementary assistance: up to ISK 231,110 per month for permanent residents aged 67 and over who have few or no rights, subject to a means test (CLEISS).

These amounts are indicative; the application is made to the competent Icelandic body, which specifies the amounts in force.

• Request the S1 from your pension fund, for yourself and for each family member concerned, and notify the French funds of the change of address and payment account.
• Register with the national register (Þjóðskrá) beyond three months of stay, with the documents requested.
• Ask Sjúkratryggingar how the S1 fits with the six-month period and arrange cover during that period.
• Register on the register of French nationals living abroad with the embassy in Reykjavik.
• Declare the social security pension under the tax convention, after checking which State taxes it.

In the event of a return to France, the insured person contacts the last health insurance fund they came under: the page on returning to France details the steps.