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Investing in Iceland - Business Guide to Iceland
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The material here is
based on a much more
detailed investors guide
for Iceland, maintained by Invest in Iceland Agency
Business Guide to Iceland
Iceland's operating environment is competitive with leading countries in the industrial world. With its low tax structure, high education levels and competitive costs for skilled labour, land and electricity Iceland is a strong candidate for businesses to short-list when seeking new locations for their international operations.
Regulatory Constraints and Relief's in Iceland
As a member of the 28-nation European Economic Area (all EU states and three of the four EFTA states), 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 in Iceland
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 UScents/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. Icelanders have embraced new telecom opportunities and internet usage, mobile phone ownership and payment card transactions are among the highest in the world with state of the art telecom infrastructure.
Special incentives are granted for film and TV production in Iceland, whereby 12% of total costs are refundable. Production cost incurred in other EEA countries is also refundable within certain limits.
Tax System in Iceland
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 bases and conclude more bilateral taxation agreements, which will increase the competitiveness of Icelandic corporations and attract foreign investors.
In December 2001 the Parliament passed a law to implement wide-ranging tax reforms, both for business and households. The tax reforms include a range of changes in tax rates and reference amounts, and abolition of inflation accounting for tax purposes and in accounting, which constitutes a large step in aligning the Icelandic tax system to that of other countries. Corporate income tax has been reduced from 30% to 18% as of January 1, 40 2002, thereby ranking among the lowest tax rates within the OECD member countries.
Tax law in Iceland
Corporate income tax rate of 18% on net income only levied by the state.
Dividends received by corporations are not taxable. No requirements relating to percentage of stock ownership in the corporate payer apply.
Consolidated returns available for corporations under 90% common control.
No branch profits tax levied on repatriated profits from branches.
Bilateral taxation agreements available.
Foreign tax credit available to avoid double taxation in the absence of tax agreements.
No legislation on controlled foreign corporations.
No legislation on “Thin Capitalization”.
No basket system regarding the foreign tax credit.
Taxes on Businesses in Iceland
Companies resident in Iceland, and Icelandic branches of foreign resident companies, are liable for corporate income tax (national income tax) on their net earnings. In 2002 the corporate tax rate was 18%.
Companies in Iceland pay net worth tax, as do individuals.
Real estate taxes are paid locally by businesses, along with local service charges.
Personal Income Taxes in Iceland
Individuals resident in Iceland are liable to income tax at the rate of 38.58%, on all earned yearly income above ISK 855,240. An additional tax of 4% is levied on all earned income in excess of ISK 4,191,686 in 2004 for an individual, and on double that amount for a couple. This tax rate will be reduced down to 2% in 2005 and abolished in 2006.
Personal income tax is withheld at source and paid as you earn. It is divided into national income tax (25.75%) and municipal income tax (averaging 12.83%), making a total of 38.58%.
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 traded and have subsidiaries are required to prepare consolidated group accounts. Tax returns are filed with local tax authorities.
Publicly traded companies in Iceland 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.
Guidance and Services for Potential Investors in Iceland
To co-ordinate efforts for attracting inward investments to Iceland, the Ministry of Industry and Commerce has established a “one-stop shop”, the Invest in Iceland Agency. The Agency is responsible for attracting inward investments to Iceland. The Invest in Iceland Agency offers free and confidential services to potential investors on all aspects of location, arranges contacts with relevant authorities and companies, fact-finding visits, etc.
More Information
Doing Business in Iceland
The source for this material is the book, Doing Business in Iceland is published by the Invest in Iceland Agency.
Invest in Iceland Agency
Iceland's operating environment is competitive with leading countries in the industrial world. With its low tax structure, high education levels and competitive costs for skilled labour, land and electricity Iceland is a strong candidate for businesses to short-list when seeking new locations for their international operations.
Regulatory Constraints and Relief's in Iceland
As a member of the 28-nation European Economic Area (all EU states and three of the four EFTA states), 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 in Iceland
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 UScents/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. Icelanders have embraced new telecom opportunities and internet usage, mobile phone ownership and payment card transactions are among the highest in the world with state of the art telecom infrastructure.
Special incentives are granted for film and TV production in Iceland, whereby 12% of total costs are refundable. Production cost incurred in other EEA countries is also refundable within certain limits.
Tax System in Iceland
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 bases and conclude more bilateral taxation agreements, which will increase the competitiveness of Icelandic corporations and attract foreign investors.
In December 2001 the Parliament passed a law to implement wide-ranging tax reforms, both for business and households. The tax reforms include a range of changes in tax rates and reference amounts, and abolition of inflation accounting for tax purposes and in accounting, which constitutes a large step in aligning the Icelandic tax system to that of other countries. Corporate income tax has been reduced from 30% to 18% as of January 1, 40 2002, thereby ranking among the lowest tax rates within the OECD member countries.
Tax law in Iceland
Corporate income tax rate of 18% on net income only levied by the state.
Dividends received by corporations are not taxable. No requirements relating to percentage of stock ownership in the corporate payer apply.
Consolidated returns available for corporations under 90% common control.
No branch profits tax levied on repatriated profits from branches.
Bilateral taxation agreements available.
Foreign tax credit available to avoid double taxation in the absence of tax agreements.
No legislation on controlled foreign corporations.
No legislation on “Thin Capitalization”.
No basket system regarding the foreign tax credit.
Taxes on Businesses in Iceland
Companies resident in Iceland, and Icelandic branches of foreign resident companies, are liable for corporate income tax (national income tax) on their net earnings. In 2002 the corporate tax rate was 18%.
Companies in Iceland pay net worth tax, as do individuals.
Real estate taxes are paid locally by businesses, along with local service charges.
Personal Income Taxes in Iceland
Individuals resident in Iceland are liable to income tax at the rate of 38.58%, on all earned yearly income above ISK 855,240. An additional tax of 4% is levied on all earned income in excess of ISK 4,191,686 in 2004 for an individual, and on double that amount for a couple. This tax rate will be reduced down to 2% in 2005 and abolished in 2006.
Personal income tax is withheld at source and paid as you earn. It is divided into national income tax (25.75%) and municipal income tax (averaging 12.83%), making a total of 38.58%.
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 traded and have subsidiaries are required to prepare consolidated group accounts. Tax returns are filed with local tax authorities.
Publicly traded companies in Iceland 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.
Guidance and Services for Potential Investors in Iceland
To co-ordinate efforts for attracting inward investments to Iceland, the Ministry of Industry and Commerce has established a “one-stop shop”, the Invest in Iceland Agency. The Agency is responsible for attracting inward investments to Iceland. The Invest in Iceland Agency offers free and confidential services to potential investors on all aspects of location, arranges contacts with relevant authorities and companies, fact-finding visits, etc.
More Information
Doing Business in Iceland
The source for this material is the book, Doing Business in Iceland is published by the Invest in Iceland Agency.
Invest in Iceland Agency
Business Environment in Iceland | Establishing a Business in Iceland
Investing Opportunities in Iceland | Business Guide to Iceland