Iceland is a popular destination for business formation due to its stable political and economic environment, as well as its favorable corporate tax rate of 20%. However, before starting a company in Iceland, it is important to be aware of the various fees and expenses that may be associated with the registration process.
The most commonly registered formats of businesses in Iceland are presented in the below table:
| S# | Type of company | Local Name | Min. paid-up capital required |
| 1. | Private Limited Company – Pvt.Ltd. | Aktiebolaget (AS) | $4,000 |
| 2. | Public Limited Company – PLC | Hlutafélag HF | $32,000 |
| 3. | Partnership | Felleskapital FH | No minimum capital required |
| 4. | Sole Trader | Einstaklingur | No minimum capital required |
| 5. | Branch Office | – | No minimum capital required |
Process & costs
The first step in registering a company in Iceland is to choose a company name and register it with the Icelandic Patent and Registration Office (PRÓ). The fee for this step is ISK 4,000 (approximately USD 32).
Next, the articles of incorporation must be prepared and submitted to the PRÓ. This document must include information such as the company’s name, registered office, share capital, and the names and addresses of the directors and shareholders. The fee for submitting the articles of incorporation is ISK 30,000 (approximately USD 240).
After the articles of incorporation have been approved, the company must be registered with the Icelandic Tax Office and the National Registry. The fee for this step is ISK 10,000 (approximately USD 80).
In addition to these registration fees, there may also be other expenses associated with starting a company in Iceland. For example, the company may need to hire a lawyer to prepare the articles of incorporation and handle the registration process, which can be costly. The company may also need to rent office space and purchase equipment, as well as hire employees.
Overall, the total cost of registering a company in Iceland can vary depending on the specific circumstances of the business. However, it is important to be aware of the various fees and expenses that may be associated with the process in order to budget accordingly.
Types of business structures in Iceland
In Iceland, there are several types of business structures that can be used to form a company as described below:
Private limited company (AS)
This is the most common type of business structure in Iceland, and it is similar to a private limited company in other countries. A private limited company is a separate legal entity from its shareholders, and it can enter into contracts, own assets, and incur liabilities in its own name. The liability of shareholders is limited to the amount of their unpaid share capital.
Public limited company (HF)
A public limited company is similar to a private limited company, but it has a minimum share capital of ISK 4,000,000 (approximately USD 32,000) and its shares can be traded on the stock exchange. Public limited companies must also comply with stricter reporting and disclosure requirements.
Partnership (FH)
In a partnership, two or more persons or legal entities operate a business to achieve common commercial objectives. Partners are jointly and severally liable for the debts and obligations of the partnership, and the partners share profits and losses in accordance with the partnership agreement.
Sole trader (Einstaklingur)
A sole trader is an individual who operates a business on their own and is solely responsible for the debts and obligations of the business. The individual’s personal assets may be at risk if the business incurs debt.
Branch office
A branch office is a foreign company that operates in Iceland through a locally registered branch. The branch office is considered to be a separate legal entity from the parent company but is fully liable for its own debts.
Each structure has its own advantages and disadvantages and it’s important for a business owner to consider the type of business, the number of shareholders, and the level of liability they are willing to take on before choosing the best structure for their business. Additionally, it’s important to consult with a lawyer or an accountant for professional advice.
Cost of doing business in Iceland
One of the main costs of doing business in Iceland is labor. The country has a highly educated and skilled workforce, but wages are relatively high. According to the Central Bank of Iceland, the average gross wage in 2020 was ISK 724,000 (approximately USD 5,722) per year. This can make it expensive to hire employees, especially in certain industries such as finance and technology.
Another significant cost of doing business in Iceland is energy. The country is heavily dependent on hydroelectric and geothermal power, which can make energy costs relatively high. However, many businesses can benefit from the country’s abundant and renewable energy resources.
Iceland also has a relatively high corporate tax rate of 20%, which can impact the bottom line of businesses. However, the country has a number of tax incentives and deductions available for businesses operating in certain sectors, such as research and development, and renewable energy.
Other costs associated with doing business in Iceland include office space and equipment, as well as various government fees and taxes. For example, businesses must pay an annual fee to the Icelandic Patent and Registration Office (PRÓ) for their business registration, as well as taxes on sales, payroll, and other types of income.
Despite these costs, Iceland is considered to be a relatively business-friendly country with a transparent and efficient regulatory environment. The country has a strong focus on innovation and entrepreneurship, and it is home to a number of successful start-ups and multinational companies.
Benefits of doing business in Iceland
Among many direct and indirect benefits of doing business in Iceland, we have listed a few that stand out from others:
Stable political and economic environment
Iceland has a stable political and economic environment, which is conducive to business growth and investment. The country has a low rate of corruption, and the government is committed to promoting economic growth and development.
The favorable corporate tax rate
Iceland’s corporate tax rate of 20% is one of the lowest in Europe, making it an attractive destination for businesses. Additionally, there are a number of tax incentives and deductions available for businesses operating in specific sectors, such as research and development and renewable energy.
Abundant natural resources
Iceland is rich in natural resources, such as hydroelectric and geothermal power, which can be leveraged by businesses in certain industries, such as technology and energy.
Strong focus on innovation and entrepreneurship
Iceland has a strong focus on innovation and entrepreneurship, and it is home to a number of successful start-ups and multinational companies. The country has a transparent and efficient regulatory environment and a supportive ecosystem for businesses.
A skilled and educated workforce
Iceland has a highly educated and skilled workforce, which can benefit businesses in certain industries, such as finance and technology.
Strategic location
Iceland is strategically located between Europe and North America, making it an ideal location for businesses that need to be in close proximity to both markets.
Great tourist destination
Iceland is a great tourist destination and it’s a good place for businesses related to tourism such as hotels, transport, and tour operators.
