Doing Business in Iceland

Do you want to expand your business into Iceland or hire employees there? Here are some key things you need to know about an Iceland expansion.

Iceland Economy Overview

Currency

Icelandic Króna (ISK)

Working hours

40 hours/week

Public/bank holidays

15 public holidays

Capital

Reykjavik

Languages

Icelandic

Population

376,000

Minimum hourly salary

Approximately ISK 2,800

Tax year

01 Jan-31 Dec

Date format

DD/MM/YYYY

Misclassification penalties

Misclassification of employees as contractors can result in fines, back taxes, and legal penalties.

Fun fact

Iceland is one of the most eco-friendly countries in the world, with almost 100% of its electricity produced from renewable sources like geothermal and hydroelectric power.

Situated between Europe and North America, the Icelandic economy is characterized by high levels of economic growth, a steadily increasing employment rate, and strong fiscal management. Despite GDP contracting by 7.1% in 2020, Iceland’s economy, driven largely by its growing tourism sector, recovered well, achieving a growth in GDP of 4.1% in 2023. Owing to its position between both the Greenland Sea and the North Atlantic Ocean, fishing has long been one of the pillars of Iceland’s economy, accounting for 40% of Icelandic exports.

In recent years, the tourism industry has rapidly accelerated, generating an estimated revenue of $128.30 million thanks to a staggering 2.8 million visitors. Iceland’s Nordic climate also opens up profitable investment opportunities within the renewable energy sector. Currently, hydroelectricity supplies power for 70% of the country, and the remaining 30% is provided by geothermal power. This means that all its energy needs can be met through renewable sources. Although its fishing industry is vulnerable to climate change shocks, government attempts to diversify the economy through investment in the services and renewable energy sectors could greatly help mitigate these risks.

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Overview of Iceland's Economy

Iceland is actively working to diversify its economy and reduce the impact of external shocks by promoting investment opportunities in various sectors. The government is focusing on the services sector and highlighting the country’s renewable energy potential to attract investors.

Sector	Key Points
Industrial	– Received large investments from American investors – Aluminum smelters produce high-quality billets with low carbon footprint – Accounts for 20.8% of GDP and employs 18% of the workforce
Energy	– Abundant renewable energy resources – Government promoting investment opportunities
Data Centers	– Nordic climate makes Iceland an ideal location – High-tech firms setting up and expanding businesses

Iceland’s economy is showing positive signs, with a steadily declining inflation rate and increasing employment rate. These factors, combined with the country’s natural advantages and supportive government policies, create an attractive environment for investment in the services, fishing, and industrial sectors.

Business Iceland, a private-public partnership, is recognized by the government as a means of promoting and facilitating foreign direct investment (FDI) in the country. This organization plays a crucial role in helping investors navigate the Icelandic business landscape and capitalize on the various opportunities available.

Taxes

Employer tax: 6.35%

Social Security Contribution

6.35% of the employee’s salary

Employee tax: 8.65%

Social Security Contribution

4.3% of gross wages

Pension Contribution

4.35% of gross wages

Income tax

Iceland has a progressive tax system for individual income.

Gross income

0 – 409,986 ISK
409,987 – 1,151,025 ISK
Over 1,151,025 ISK

Progressive tax rate

31.44% – 31.52%
37.94% – 38.02%
46.24% – 46.32%

Business Regulation in Iceland

Registering a business in Iceland is a relatively easy process. Companies are required to choose a business structure and apply for registration with the Register of Enterprises. Once an electronic ID has been procured, the business must submit the necessary documents, including details of shareholders and directors, as well as the business purpose. A registration fee must also be paid, and this amount will vary depending on the chosen business structure. Private Limited Companies must deposit a minimum share capital of ISK 500,000 in an opened bank account. Thanks to Iceland’s streamlined registration process, the whole procedure should take no more than 4-5 days.

Companies operating in Iceland must comply with the relevant taxation and labor laws. Corporate tax rates for Private Limited Companies and LLCs currently sit at 20%, while partnerships and joint ventures are asked to pay 36% CIT. Corporations are expected to pay 24% VAT, though for certain operations, such as food sales, this will be reduced to 11%. Tax incentives, including exemptions and deductions, are also available for businesses contributing to specialist sectors.

The Icelandic Confederation of Labour (ASÍ) stipulates that workers are required to work no more than 40 hours divided into 8-hour stints. Time exceeding this amount will be counted as overtime and compensated by the employer. Employees are entitled to an increasing amount of sick leave corresponding to the length of time they have worked for the company. For the first year, workers are allowed 2 days a month of sick leave. This increases to four months after 5 years of working with the business. Employees in Iceland accumulate paid holiday leave and can choose how to use this depending on their organization.

Benefits of Doing Business in Iceland

Iceland offers many profitable and exciting opportunities for investors across a range of economic sectors. The country’s strong fishing sector, rapidly expanding tourism industry, and global interest in its renewable technologies and innovations make it a prime location for international expansion.

Iceland is known for its advanced green energy technologies. Able to meet domestic supply through renewable energy sources alone, the country is well on the way to becoming a leader in climate solutions. Iceland’s proven technological results and sophisticated handling of green solutions have characterized the nation as one that possesses highly valuable and lucrative expertise. As countries look to diversify their own energy production, Iceland has the technological knowledge and skilled professionals to assist in global projects. Iceland’s cold climate also proves particularly beneficial for data centers that need to run operations that use large quantities of energy. Whilst these functions are usually very expensive, Iceland’s renewable energy supply means that businesses can minimize the cost of their carbon footprint.

Tourism has been instrumental in Iceland’s economic recovery following the pandemic. The country’s incredible natural landscape and a plethora of resorts and 5-star hotels have increased tourism levels to exceed those of the industrial and agricultural sectors. Home to mountains, glaciers, volcanoes, and the northern lights, Iceland is a must-see destination for travelers.

Additionally, investment in Icelandic seafood, capitalizing on its sustainability and traceability, has greatly increased the value of fish exports. The government recognises the sector as a crucial contributor to GDP, but it also acknowledges its limitations. Iceland’s reputation for sustainable fishing has established it as an ethical seafood provider, increasing the demand and value of its products worldwide.

Business Expansion Options in Iceland

Businesses looking to expand into Iceland must carefully choose the business structure that suits their needs. The most common entry into the market is through a subsidiary or branch office.

Iceland Employer of Record (EOR)

Similar to a Professional Employer Organization (PEO), an Iceland Employer of Record (EOR) hires employees on behalf of a company, managing all employment-related legalities and compliance. The Iceland EOR becomes the official legal employer of your Iceland team. This method is fast and efficient, making it perfect for companies that need to quickly deploy staff on the ground.

An EOR handles payroll, benefits, taxes, and compliance with local labor laws, allowing businesses to focus on their core activities. They may also provide additional services, such as Iceland talent acquisition and visa support.

Learn more about EOR in Iceland

Recruitment Agencies

Recruitment agencies in Iceland help businesses expand by connecting them with skilled local talent across various industries.

Remote People provides recruitment solutions that simplify hiring and ensure compliance with Icelander labor laws.

For businesses looking to grow in Iceland, Remote People offers the expertise and resources needed to build a local workforce quickly and effectively, making it a practical solution for market expansion.

Learn more about Recruitment Agencies in Iceland

Iceland Professional Employer Organization (PEO)

Iceland’s clear legislation and streamlined administrative procedures have made incorporating a business relatively easy. However, for businesses still unsure about regulation requirements pertaining to different economic sectors or wishing to optimize international expansion, services such as PEOs and EORs can be contracted to assist their endeavors.

Partnering with a Professional Employer Organization (PEO) allows companies to employ local staff in Iceland without the need to establish a legal entity. This approach is quicker and less expensive, making it ideal for businesses testing the Iceland market or those with limited operations. PEOs handle administrative tasks and ensure that companies comply with Iceland regulations, reducing the complexity and risk associated with hiring local employees in Iceland.

Learn more about PEO in Iceland

Subsidiary Incorporation

Prior to registering with the Registrar of Enterprises, companies looking to incorporate as a subsidiary must reserve a company name via the Directorate of Internal Revenues website. Additionally, a minimum share capital of 500,000 ISK should be deposited, one director and shareholder appointed, and a registration fee of 130,500 ISK should be paid to the relevant authority. Companies will also be required to register a legal address. Whilst there are no restrictions for public limited companies pertaining to ownership, companies operating in the fish processing, fishing, aviation, and energy production sectors can not be wholly owned by an international employer.

Subsidiaries allow companies to expand internationally without being liable for any financial debts incurred. The actions and management of the company are seen as independent from the parent company, and thus, the subsidiary can operate in a way more suited to Icelandic culture.

Branch Registration

To register a branch in Iceland, companies must pay a registration fee of 256,500 ISK. There is no minimum share capital requirement for the incorporation of branch offices, but companies must submit documents, including articles of incorporation, a valid form of ID, a letter detailing the purpose of the business, and the registration certificate.

Branch offices are viewed as extensions of the parent company and therefore all management of operations is conducted according to the parent company’s regulations. The parent company is also liable for any financial burdens acquired by the incorporated business.

Business Opportunities in Iceland

Iceland presents a wealth of business opportunities for investors and entrepreneurs, thanks to its strategic location, abundant natural resources, and supportive government policies. The country’s unique advantages, coupled with its highly educated workforce and innovative business environment, make it an attractive destination for companies seeking to establish a presence in the North Atlantic region.

Sector	Opportunities	Advantages
Renewable Energy	Geothermal and hydroelectric projects	Abundant resources, government support, growing global demand
Data Centers	High-tech firm expansion	Cool climate, reliable and affordable energy, strong IP protection
Tourism	Sustainable tourism initiatives	Unique natural attractions, growing interest in eco-tourism, well-developed infrastructure
Fisheries & Aquaculture	Value-added processing, export-oriented activities	Rich marine resources, expertise in sustainable practices, high-quality products
Biotechnology & Life Sciences	Novel therapeutics and diagnostic tools	Highly educated workforce, advanced research facilities, government support for R&D

Although the country’s smaller population may seem challenging for investors looking to hire local talent, not only does Iceland have a high employment rate, but it is a member of the EEA (European Economic Area), meaning it has easy access to foreign workers seeking employment opportunities in Iceland.

Iceland’s stable political and economic environment, favorable tax regime, and efforts to streamline business regulations make it an attractive destination for investors looking to tap into the potential of this innovative Nordic nation.