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Doing business in Iceland

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The following information is taken from Invest in Iceland agency (www.invest.is). Promotion of Iceland as a profitable and secure option for investment is outlined in the official  published guidelines about how to do business in Iceland. These are updated regularly, the sixteenth edition appeared in 2018. In general the focus is on favorable environment for businesses, access via internet, web based solutions and information, general and regional incentives, low corporate tax, availability of land and efficient business environment in a European legislative framework.

Iceland has systematically made its business environment increasingly attractive for investment and filming location. A framework for incentives for initial investments has been adopted and the country has one of the lowest levels of corporate income tax in Europe. Regional incentives include the authorization to fix a ceiling on the income tax rate at 15% for 10 years. Also to depreciate real estate, equipment and moveable assets fully, reduce the rate of property tax and the general social security charge. A grant exemption from customs and duties for construction materials has been introduced as well charges for machinery and equipment, and other capital goods. The state and municipalities can also authorise to lease a site for the project at reduced rates.

The criteria for incentives has been simplified, and application processes streamlined. The new legislation has been approved by the EFTA Surveillance Authority as a legitimate state aid scheme.

Please see the detailed updated framework on the web of invest in Iceland, www.invest.is These guidelines address registration, form of companies, VAT, taxes and excise charges. 

Iceland has access to EU research funds for R&D programs and joint ventures undertaken with companies from at least one other EEA country. Grants are issued for specific projects on a case-by-case basis by bodies including the Science, Innovation and Promotion Fund.

 

Film and TV Production rebate

Special incentives are granted for film and TV production in Iceland. The production must be incorporated in Iceland. An Icelandic branch or a representative office of a corporation registered in one of the EEA countries is considered as incorporated for this purposes. There are no requirements as to the production budget, but the films must promote Icelandic culture, introduce the history of Iceland and its nature. The film and TV rebate by 2018 is 25%.

Tax credit for Research and Development

IEducation levels in Iceland are high and gratuate sudents go to most countries before returning back to Iceland. The EFTA Surveillance Authority has approved an Icelandic scheme for innovation companies that need to import konw how. The objective of the scheme is to improve and foster research and development. Under this scheme companies that carry out R&D projects can apply for a tax credit to the Icelandic Centre for Research (Rannís). The aid is limited to 20% of ISK 100 or 150 million of the project costs, irrespectively of whether the total project cost may be higher. The aid is granted as a reimbursement of the companies´ paid income tax.

Investments

The purpose of incentives for initial investment is to promote commercial operations, the competitiveness of Iceland and regional development. However, the Act does not apply to investments in companies which provide services on the basis of legislation on financial undertakings, insurance operation or security.

Under the European Economic Area Agreement, investment by EEA residents is in principle unrestricted. Still, fishing operations within the Icelandic fisheries jurisdiction are restriced as presented in the guidelines

The government authorities are permitted to grant both general and regional incentives for new investments up to a defined ceiling, in line with EU legislation. The regional incentives apply to areas outside the capital area.

Regional incentives may include (Act 41/2015)

• Authorization to fix the rate of income tax down to 15% for 10 years

• In the year when new assets are taken into operation, the company can elect to depreciate those assets with a proportional factor of the annual depreciation instead of full years depreciation

• Real estate, equipment and moveable assets can be depreciated fully, leaving no residual value

• Authorization to reduce the rate of property tax by 50% for 10 years

• Authorization to reduce the rate of the general social security charge by 50% for 10 years

• Exemption from customs, duties and excise duties on importation or domestic purchase of construction materials, machinery and equipment, and other capital goods, as well as spare parts for the building of the investment project and the operation thereof

• Authorization for the state or the municipalities to sell or lease a site for the investment project, at a price which is regarded as below normal market price

 

General incentives

Also, with reference to Commission Regulation (EC) No 800/2008 certain categories of aid are compatible with the common market. New direct investment projects can apply for an investment agreement. EU regulation does also allow general incentives for SMEs, R&D and environmental protection. Foreign experts may deduct 25% of their salary and thus reduce their tax base in the first three years of their recruitment in Iceland.

Operating a business

The best available information on the establishment and operation of buisiness are to be found in the guidlines. Delopment agencies, accountants, lawyers can assisit in the required documentation. 

An Icelandic identification number and VAT number is issued within a period of 1-2 weeks and with that the new entity can go in to business provided that has the relevant operating licenses if needed.  Some industries need relevant authorities to be granted an operating license. When hiring staff the business operator needs to bear in mind that there are payroll taxes and social contributions that the business has to pay on behalf of their employees. 

All information in English and application forms are to be found on www.rsk.is the web of the Directorate of Internal Revenue   If the business is selling goods or services that bear VAT the business can claim VAT paybacks for the VAT paid for the purchase of inputs for the business.  

Corporate taxes are 20% on profits, but can be less if investment incentive agreements are made with the government.