Doing Business in Iceland
Regulatory Constraints and Reliefs
As a member of the 30-nation European Economic Area, Iceland implements the same basic liberal business philosophy as the European Union. Except in a few limited areas, all EU commercial legislation and directives take effect in Iceland. Consequently, Iceland makes an ideal springboard for tariff-free access to the major EU market area, as well as a fully competitive location for EU companies to operate.
Exchange Controls: No restrictions are imposed in Iceland on buying or selling of foreign exchange.
Foreign Ownership of Business: In principle, foreign ownership of business is unrestricted. However, some limitations apply to specific sectors, namely fishing, primary fish processing, energy production and aviation.
A wide range of portfolio investment options are available through licensed securities trading companies.
Official Attitude and Incentives
Iceland has systematically made its business environment increasingly attractive for investment and location, among other things with the series of tax cuts which now give Iceland one of the lowest levels of corporate income tax in Europe.
Advantages offered by Iceland for industrial investors include the most competitive electricity prices in Europe at 2-3 US cents/kWh for large industrial users, depending upon delivery terms, and industrial steam at 6 barg or USD 3 per metric tonne. Industrial sites with good natural harbours, for small and large ventures, are available in many parts of the country, and many local authorities have designed development strategies and scenarios which provide for new investments. Highly skilled labour is available, including experts in software and a wide range of research fields.
Special incentives are granted for film and TV production in Iceland, whereby 14% of total costs are refundable. Production cost incurred in other EEA countries is also refundable within certain limits.
The Icelandic Tax System
The Icelandic tax system is relatively simple and effective. In the last few years the emphasis has been to simplify it further, reduce tax rates, broaden the tax base and conclude more bilateral taxation agreements, which will increase the competitiveness of Icelandic corporations and attract foreign investors.
Personal Income Taxes in Iceland
Individuals resident in Iceland are liable to income tax at the rate of 35.72%, on all earned yearly income above ISK 1,143,362 (USD 18,253).
Personal income tax is withheld at source and paid as you earn. It is divided into national income tax (22.75%) and municipal income tax (averaging 12.97%), making a total of 35.72%.
Financial income of individuals is taxed at the rate of 10%.
Resident individuals are taxed on their worldwide income.
Non-resident individuals become tax residents if they stay in the country for more than 183 days out of a 12-month period.
A non-resident individual is taxed on Icelandic-sourced income.
Financial Reporting and Audit Requirements in Iceland
Every company resident and operating in Iceland must submit annual accounts that comply with statutory accounting rules and disclosures, and reflect a true and fair view of the company’s assets, liabilities, results and financial position. Presentation is modelled upon standard EU requirements. The requirement of adjustments being made to revalue assets and liabilities on the principles of inflationary accounting was abolished in 2001.
Companies above a certain size which are publicly quoted and have subsidiaries are required to prepare consolidated group accounts. Tax returns are filed with local tax authorities.
Corporations registered in Iceland, with the main part of their income from foreign sources, can apply to keep their books of accounts and records in a foreign currency.
Limited liability companies registered on an official financial market are allowed to issue their share capital in a foreign currency. Other limited liability companies with the main part of their income from foreign sources will be able to issue their share capital in a foreign currency provided that certain requirements are met.
Source: "Doing Business in Iceland sixth ed."Invest in Iceland Agency.