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Doing business in Iceland

The following information is taken from Invest in Iceland agency (www.invest.is)


Iceland focuses on favorable environment for businesses in general, including low corporate tax, availability of land and efficient business environment in a European legislative framework. An Act on incentives for initial investment in Iceland has recently been adopted. Apart from certain derogations from taxes and charges, incentives can also come in the form of direct cash grants, training aid and lease of land.


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.

Industrial sites are available around Iceland at competitive cost and local communities may offer certain incentives. However, as a member of the EEA, 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 New Business Venture Fund and Science Fund.


Film and TV Production rebate

Starting in 1999, 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 and introduce the history of Iceland and its nature. The film and TV production cost rebate rate is currently 20%.


Tax credit for Research and Development

The EFTA Surveillance Authority has approved an Icelandic scheme for innovation companies. The objective of the scheme is to improve and foster research and development. Under the scheme companies that carry out research and development 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.



The purpose of a new Act on incentives for initial investment in Iceland is to promote initial investment in 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 securities.


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

Regional incentives may include:

  • Certain derogations from certain taxes and charges
  • Fixed ceiling on the rate of income tax for 10 years
  • Security clauses in terms of new taxation
  • Favorable depreciation rules
  • Direct cash grant
  • Authorization to lease sites from the state or municipalities below market price

General incentives may include:

  • Training aid
  • Aid to SMEs,
  • Aid to R&D investment
  • Aid to environmental investment projects
  • Incentives are subject to a defined ceiling. Incentives do not apply to the financial sector.


General incentives

Reference to Commission Regulation (EC) No 800/2008 declaring certain categories of aid compatible with the common market:

Incentive as Training aid

  • Maximum 2 million Euros
  • Incentive as aid to SMEs investments
  • 10% or 20% of investment cost, max 7,5 million Euros
  • Incentive as aid to environmental investment projects
  • Maximum 7,5 million Euros



Operating a business


Establishing a business is straight forward and can be handled by development agencies, accountants, lawyers or any knowledgeable person about 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 grant 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 for its employees.  These taxes and contribution can amount to 25-25% on top of the wages offered to employees.    In the Westfjords region the average wages per sector is as follows:


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.