Starting a business in Iceland
Introduction
To establish a company in Iceland you need a Kennitala, which is a personal ID. Verify if any special licensing or permits are required for your business activity sector. Decide on your business structure and register your business with the Director of Internal Revenue (Ríkisskattstjóri / RSK). The tax year runs from 01/01/xx to the 31/12/xx each year. In general, personal tax returns must be filed by the 10th Mar and corporate tax returns by the 31st May for the previous financial tax year.
The difficulty with establishing a business in Iceland lies in navigating the information from the various different organisations that you have to deal with. Often the information only exists in Icelandic. Where there is an English option of the website, the information is often incomplete. You can use a translator (if using Google Chrome simply right click on any web page and select translate to English) but even then the translations can be highly inaccurate and confusing.
In general, Icelandic people are friendly, very helpful and have a firm grasp of the English language. This is also true of the workforce in the various different organisations that you will be dealing with. For accurate information, advice and guidance, you are encouraged to call the organisation you are dealing with directly.
This guide aims to outline what your options are and how to identify, find and navigate the relevant information from the various different authorities you will need to deal with when starting your new business. It gives some basic guidance on business planning for startups, financial and legal requirements, and some useful resources to help you start your business.
Personal ID (Kennitala) and Electronic Certificate (Auðkenni)
Personal ID (Kennitala)
Anyone starting a business in Iceland must have a personal ID number (kennitala) which is a ten-digit number. The ID number serves as a gateway to Icelandic society and is used for tax, insurance, car registrations, bank transfers etc. It is also possible to run an individual company using your personal kennitala under certain low income expectation circumstances. When registering any other business structure, a new company kennitala will be created.
A foreigner from a country outside of the EEA / EFTA who plans to stay in Iceland for more than three months, must have a valid residence permit.
Citizens from the EEA / EFTA states do not need a special residence permit to stay in Iceland, but must make an application to Registers Iceland if they are planning on staying for longer than 3 months. Note that you will have to go to Registers Iceland or the nearest police office and present a passport and other mandatory documents before the application can be processed. If you are planning to work in Iceland for less than 3 months you can fill out an application for a temporary kennitala.
Electronic Certificate (Auðkenni)
It is worth mentioning here that an electronic certificate (auðkenni) is a requirement for many basic day to day living circumstances in Iceland. This is a security measure that uses your kennitala, mobile phone and bank account to create an electronic proof of ID. As well as making digital payments or using government services online, you will require an electronic certificate when registering your business activities with the Director of Internal Revenue. When you make any transaction requiring an electronic certificate, you will receive a message on your mobile phone prompting you to enter a pin number to complete the transaction. Providing you have a kennitala and mobile phone, the electronic certificate system will be set up in branch when opening up your bank account.
Licensing and permits
Operating licenses are required for businesses in certain sectors; for example manufacturing or hospitality, and are granted on fulfillment of clearly defined rules. Details of regulations, monitoring and inspection agencies etc. vary from one sector to the next but generally speaking, as a member of the EEA, Iceland operates its regulatory environment on the same principles as the European Union.
It is necessary to check whether licenses and / or registrations are required for the business activity in question. Information and applications for operating permits are available on the websites of the relevant ministries, institutions and local governments. It is advised that you check as soon as possible whether licenses are required as it can take some time to obtain them and you may need to provide additional documents to prove the relevant qualifications necessary to grant the license. You will have to apply for an operating licence from the relevant organisation dependent upon the industry you will be starting your business in. You may even need to go to several different places to obtain permits.
Brief overview of the most common organisations that issue operating licenses
| Directorate of customs General information on rules and regulations regarding importation of goods to Iceland |
Skatturinn Tollur |
| Government Offices in Iceland Information, services and documents from Government Offices |
Stjórnarraðið |
| The Environment Agency of Iceland Promotion and protection of natural resources and public welfare. Ensuring a healthy environment and safe consumer goods |
Umhverfisstofnun |
| Icelandic Occupational Safety and Health Administration Prevention of accidents and health damage in the workplace |
Vinnueftirlitið |
| Reykjavik Health Authority Hygiene, food and pollution control |
Heilbrigðiseftirlit Reykjavíkur |
| Directorate of labour Responsibility for public labour exchanges, Unemployment Insurance Fund, Maternity and Paternity Leave Fund, Wage Guarantee Fund and projects connected with the labour market |
Vinnumálastofnun |
| Icelandic Pension Funds Association General information on pension funds, rights and services |
Lífeyrismál |
| Internal Revenue Directorate General information on taxes, tax services, tax forms and tax billing |
Skatturinn |
| Ministry of Finance and Economic Affairs Responsible for the state’s financial and economic affairs, for which it formulates policy and prepares plans and budgets |
Skatturinn Fjármála og efnahagsráðuneytið |
| MAST – Icelandic Food and Veterinary Authority Promotes the health and welfare of animals, plant health and the safety and quality of food |
MAST Matvælastofnun |
| MATIS Provide partners with support for increased value creation, food safety and public health |
MATÍS |
Example of the different agencies that need to be engaged when establishing a restaurant
| Process | Necessary steps and actions | Responsible agency |
| Starting a business | Anyone starting a business in Iceland must have an electronic ID (Kennitala). | Registers Iceland www.skra.is |
| The establishment of a private limited company can be done digitally using a digital certificate related to the ID number of the applicant. Electronic forms are available that can be filled out and sent to the Directorate by email when registering a new company. | Directorate of Internal Revenue www.rsk.is |
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| Register a trademark (Optional) | The Icelandic Intellectual Property Office www.hugverk.is | |
| Establishing a restaurant | If a new restaurant is being set up a building permit is necessary before the renovation or building starts. | Municipality – building and planning division www.samband.is |
| All restaurants need to have an operating licence issued by the local district commissioner. This licence is dependent upon a licence from local health authorities. These two authorities work together and if an application is sent to one authority the other one is also notified. | District Commissioner www.syslumenn.is District Commissioners exercise the executive power and administration of the state, each in its own district. |
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| A licence from local health authorities is also necessary for all restaurants. As described above it is dependent upon an operating licence from the district commissioner. The process for applying for these licences can be done simultaneously and the authorities share information with each other in the process. | Local Health Authorities www.shi.is |
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| Reviews and comments are needed in the licence procedure described above from different authorities. | Municipality (planning and building divisions), Police, Fire department, Occupational Health and Safety Authority |
Business structures and how to register them
The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.
The main business structures in Iceland are described below. Clicking on a business structure header will take you to a new page describing how to register that business structure with the Director of internal revenue, and provides links to download the relevant forms.
StartupTools is a website with free resources for startups. You can download fair and standardized investment documents (term sheet, subscription agreement and shareholders’ agreement) as well as founders’ agreement, employment agreements and more. The documents contain English translations of Icelandic text and thorough definitions, descriptions and comments on words and expressions to help you to understand and complete these documents yourself.
Individual Company - Einstaklingsfyrirtæki
A company that is run on an individuals own personal kennitala is called an Individual company. This form of operation is suitable for personal operations that are either intended for the short term, expect minimal annual income or involve little risk. The owner’s responsibility for the obligations that the company makes are direct and unlimited. There is no need to submit capital at its establishment and the registration fee is nothing unless the individual owns the business with a special name. If using a special name, the business must be registered in the Companies Register.
Registration cost: ISK 0
Minimum share capital: ISK 0
See more…
Private Limited - Einkahlutafélög (ehf.)
A private limited company may have one shareholder and the minimum share capital is ISK 500,000. There is no limit on the share capital or the number of shareholders, and this form of company is suitable for small and large companies. The vast majority of businesses registered in Iceland are Private limited companies.
Owners’ liability is limited to share capital. The registration cost ISK 131,000 can be deducted from the ISK 500,000 minimum share capital that you have to deposit.
Registration cost: ISK 131,000
Minimum share capital: ISK 500,000
See more…
Limited Companies - Hlutafélög (hf.)
The share capital of this form of business shall be divided into at least two parts and shall be at least ISK 4,000,000. The shareholder form is primarily considered to be suitable for larger and more extensive operations, with the objective of being listed on the stock exchange.
The liability of the owners is limited to their share in the company.
Registration cost: ISK 256,000
Minimum share capital: ISK 4,000,000
See more…
Partnerships - Sameignarfélög (sf.)
To start a Partnership Company, the founders need to be two or more owners, whether individuals or other legal entities. Responsibility of all owners is direct and unlimited. Direct liability refers to the position of creditors in such a way that they can therefore go directly to the personal property of the owners. Undivided ownership of the owners actually means that every owner of the company guarantees all its debts and where there is an unlimited guarantee it means that the owners do so with all their assets. The main advantages of these forms of association are that initial costs are not high and the legal environment is fairly simple, the company is easy to liquidate, there are sufficient resources to withdraw funds and taxation is somewhat favorable if profits are generated. Requires the owner’s responsibility, but it is very comprehensive as it covers the obligations that the co-owners make in the name of the company.
Registration cost: ISK 89,500 + ISK 5,000 to set up a new social security number for the partnership
Minimum share capital: ISK 0
See more…
Syndicates / Co-operatives - Samlagsfélög (etc.)
Co-operative societies are registered with the corporate register of the Director of Internal Revenue. Initial data must be submitted to business registers and registration fees paid. A social security number will be created when registering a company. The ÍSAT number (Icelandic Industry Classification) is registered with an organization according to information from the founders about the company’s main activities. The founders and later members of a partnership can be legal persons and legal entities. It is compulsory to enter into a written association agreement on listed companies and the agreement must be signed by all the founders and those who later join the company. If the Board of Directors is elected, the Managing Director and the auditors or inspectors are elected, a certified copy of the minutes of their terms of office shall be included, together with their declaration that they will take up the position. The company contract must state whether the company is independent or an independent taxpayer. Attention is drawn to the fact that a couple alone or with their children cannot form a joint venture or partnership that is an independent taxpayer.
Registration cost: ISK 256,500
Minimum share capital: ISK 0
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A self-employed business enterprise - Sjálfseignarstofnun í atvinnurekstri (ses.)
Private business organizations are listed in the corporate register of the Internal Revenue Service. The minimum initial capital is ISK 1,000,000 and all initial capital shall be paid upon registration. Initial data must be submitted to business registries. The turnaround time for filing a self-employment institution is generally about ten to twelve business days from the date of submission of data to business registers, if the submitted data is satisfactory and payment (or payment receipt) is included with the submission.
Registration cost: ISK 131,000
Minimum share capital: ISK 0
See more…
Branches of foreign companies in Iceland - Útibú erlendra félaga á Íslandi
Branches of foreign companies are registered with the company register. The necessary data must be submitted to the business register and the registration fee paid. The turnaround time for filing a foreign company’s branch is generally about ten to twelve business days from the date the data is submitted to the business register if it is satisfactory and a payment (or payment receipt) is included with the data.
Registration cost: ISK 256,500
Minimum share capital: ISK 0
See more…
Registration of companies forms (ehf./hf./sf./slf./ses.)
| RSK 17.20 | Notice of establishment of a limited company (hf.) |
| RSK 17.21 | Notice of establishment of a private limited company (ehf.) |
| RSK 17.22 | Notice of self-employment in business (ses.) |
| RSK 17.24 | Announcement of the creation of a joint venture |
| RSK 17.25 | Notice of registration of the business name of the individual company |
| RSK 17.26 | Notice of establishment of a partner company |
| RSK 17.27 | Real Owner Announcement ( New for Registration Only ) – ( english ) |
| RSK 17.28 | Notice of real owners – NGOs and other similar parties |
For a list of all forms on the RSK website please click here.
The process for registering a private limited company
The table below details the typical procedures, time and cost requirements to register a small-to medium-sized Private limited company online to start up and formally operate in Iceland. Although the registration should only take 4-5 days to process, those who start a business must report it to the Directorate of Internal Revenue, no later than 8 days before the start of operations.
1. Search for company name
| Step | Procedures | Time to complete | Associated costs |
| 1 |
Search for company name
You need to verify that the business name you want to register for your business is free and does not already exist. Enter the company name of the company to be established, its legal domicile and founding date. The computer system will check to see if there are any company names or trademarks on the list that could possibly prevent the listing of the new company. This is a simple search only and RSK employees will look more closely at the company name when the data is processed. Although there is no indication of possibly too similar a company name, it does not have to mean that the company name will be approved. Foreign extras can be registered but it must be the direct translation of the Icelandic main name of the company. You can also register a special postal address if the mail is not to go to the company’s domicile. If the address is in the home of another company or person, it is good to register with another party (reach out). The identity number of the person / company must be entered. |
Less than one day (online procedure) | no charge |
2. Apply for registration with Register of Enterprises
| Step | Procedures | Time to complete | Associated costs |
| 2 |
Agency: Register of Enterprises To register your business with the Register of Enterprises, you must first register for electronic identification. Once you have your electronic ID you can register your Private limited company by logging in to your RSK account. In order for the registration to be approved, you must submit information about the company’s owners. This is done by filling out a separate form RSK 17.27. You submit the completed form with a 5 digit application number that you are assigned and prompted with on the opening page of the application form. The RSK processing form must be submitted with the 5 digit application number or scan it and send to rafraenn@rsk.is. The online business registration application will take you through a series of pages to fill out information related to the company being established.: The company’s founding documents are automatically prepared by RSK, but you can also upload your own initial documents. The register is also in charge of advertising the incorporation notice in the Official Gazette, the official journal. The total registration fee is ISK 131,000 which includes the company identification number (ISK 5,000), and the fee for publishing the notification in the Official Gazette (ISK 1,000). |
1 day | no charge |
3. Deposit initial capital in bank account
| Step | Procedures | Time to complete | Associated costs |
| 3 |
Agency: Commercial Bank Claims for payment of registration fees and notification fees are now sent directly to the registrar’s home bank and payment registration fees are only carried out in this way. The ISK 500,000 minimum share capital must exist and be in the bank account of one of the founders of the company until the company is registered and a business bank account has been opened. The registration fee payment ISK 131,000 can be deducted from the ISK 500,000 minimum share capital, and the remainder of the minimum share capital can be withdrawn and used as soon as the company has been registered and received the new company kennitala. The registration process should take between 4-5 days to complete once the payment has been made. The registrant no longer has to transfer the registration fee to the Director of Internal Revenue. If a registrar does not have a home bank, you can select another payer at the last stages of registration. Once all the documents have been signed and the registration fee paid, the data is submitted to the employees of the RSK business registers who either record the data or request corrections if necessary. |
Between 4-5 days | ISK 131,000 |
4. Obtain a VAT number
| Step | Procedures | Time to complete | Associated costs |
| 4 |
Agency : Directorate of Internal Revenue Exempt from the obligation to register for VAT are those who sell labor and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity (was 1.000.000 ISK before January 1st 2017). The registration duty does not apply to employees. Applicants can notify the Directorate of Internal Revenue online by logging into www.skattur.is with their web key and filling out form 5.02 (download English translation guidance instructions for completing the form here). The signed form and notification can also be sent via email to the Register of Enterprises rsk@rsk.is or by visiting the offices of the Director of Internal Revenue at Laugavegur 166, 105 Reykjavík. The Director of Internal Revenue will then assign the applicant company with a VAT number which the company shall use in it’s economical activities. Notify tax authorities of employment of workers Withholdings from employment income are covered under the PAYE system. An employer has a monthly reporting obligation, as well as a withholding obligation related to income. In addition, employers are obligated to pay an insurance tax / social security tax. In the 2020 tax year, the insurance tax rate is a total of 6.35% . Of this, the insurance premium itself is 4.90%, the employment insurance premium is 1.35%, and then a supplement is added to the Guarantee Fund (0.05%) and the market fee (0.05%). Employers are required to calculate and deduct taxes from all salaries and wages paid out to employees. Taxable income includes, for example cash payments, wages, fees, sickness allowance and benefits in kind. Employers are also obliged to deduct mandatory (and voluntary) fees to workers unions, pension funds as well as to pay wage-related expenses. There is an interactive payroll calculator in English where employers can calculate anything regarding salaries and compensations of employees. |
Less than one day (online procedure) | no charge |
Income tax & VAT (Value Added Tax)
The taxation system in Iceland is the PAYE system (Pay-As-You-Earn). Taxes are deducted from all taxable incomes and consist of income taxes and municipal taxes normally paid on a monthly basis. As an employer, you must pay withholding taxes and other wage related expenses such as pension payments and union payments. The screen-grab below will give you an idea of your wage related expense responsibilities as an employer. This interactive payroll calculator can help you calculate anything regarding salaries and compensations of employees.
You can get more detailed information regarding taxes and fees on the skatturinn website including information on environmental and resource taxes, payroll, capital income tax and income tax.
If you plan to do your own bookkeeping and accounting, you should familiarise yourself with accounting and revenue recording and tax returns.
Income tax
Income tax is a tax imposed by government on income generated by a businesses (corporate income tax) or individual (personal income tax). The taxable base for corporate income tax is net income, i.e. income after deduction of operating expenses. Corporate income tax varies by business type:
| Legal form | Income tax % |
| Private limited companies and limited companies | 20.00% |
| Partnerships and joint ventures | 36.00% |
| Self-employed lower level | 36.94% |
| Self-employed individuals higher level | 46.24% |
Business income tax base
In business operations, the income tax base is found by adding up all the income in the year in question and deducting from that income all deductible expenses in the same year. If the difference is positive, it is the income tax base of the business. If charges are equal or higher, no income tax is calculated.
For example:
| Income | Amount ISK |
| Income from main business | 10,000,000 |
| Other income | 1,000,000 |
| Total revenue | 11,000,000 |
| Expense | Amount ISK |
| Supply | 3,000,000 |
| Salaries and related expenses | 4,000,000 |
| Real estate operations | 1,500,000 |
| Other charges | 1,000,000 |
| Interest rates | 500,000 |
| Total charges | 10,000,000 |
| Profit (income tax base) | 1,000,000 |
Difference in income tax according to business structure
| Business structure | Income tax amount ISK | Income tax % | Income tax ISK | Profit after tax | Explanations |
| Limited companies | 1,00,000 | 20.00% | 200,000 | 800,000 | If shareholders receive a dividend, they pay a 20% capital income tax on the dividend. |
| Co-operative Society Samlagsfélag | 1,000,000 | 36.00% | 360,000 | 640000 | No tax is paid on the company’s owners’ withdrawals |
| Individual company Self-employed persons lower level <834,707 ISK in a month** |
1,000,000 | 36.94% | 369400 | 630600 | Bracket. No tax is paid on the owner’s withdrawal from the business |
| Individual company Self-employed persons, higher levels> 834,707 ISK per month ** |
1,000,000 | 46.24 | 462400 | 537600 | No tax is paid on the owner’s withdrawal from the business |
** The level of taxation of self-employed persons is determined by the person’s calculated remuneration (monthly salary) in the operation and the profit for the year divided by month.
It is worth noting that if you set up a private limited company as an individual, you will pay a personal income tax on the salary that you pay yourself from the business, as well as the corporate income tax of 20% that you will pay on the net profits generated from the business. Personal income tax bands:
| For the income year 2020 the rate of income and municipal tax is calculated in three brackets: | Percentage |
| ISK 0 – 336.916 per month | 35,04% |
| ISK 336.917 – 945.873 per month | 37,19% |
| Income exceeding ISK 945.873 month | 46,24% |
VAT (Value Added Tax)
VAT is a tax paid by the end users of a product or service and is not part of the income and expenses of the companies that have a VAT number.
Value added tax companies collect this tax for the Treasury from the consumer and pay it back to the Treasury. They thus carry out a certain tax collection for the Treasury and may incur the cost of work on the collection.
The value added tax is in most cases 24% but in the following cases it is 11%
- Rental of hotel and guest rooms and other accommodation services.
- Utilization of radio and television stations.
- Sales of magazines, newspapers and national and regional newspapers.
- Sales of books, both original and translated, as well as audio recordings of reading such books.
- Sales of hot water, electricity and oil for heating houses and pool water.
- Sales of food and other food products defined in the Appendix to the Value Added Tax Act.
- Access to road structures, such as tariffs for access to Hvalfjörður tunnels.
- Sales of CDs, recordings, magnetic tapes and other similar media with music but not image.
- Sale of condoms, multi-use diaper and diaper liner
- Travel agencies and migration activities that business is not exempt from value added tax.
Value added tax is calculated on top of the price of a product or service that the operation in question has decided to use. The example below shows the breakdown of product prices.
| Description | Amount ISK |
| Sale price of goods / services of a company | 1,000 |
| Value Added Tax is collected for the Treasury | 240 |
| Total price paid by the consumer | 1,240 |