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Iceland offers low corporate tax rates and a straightforward registration process for foreign entrepreneurs. This article covers business structures, registration steps, costs, and tax obligations for starting a business in Iceland.
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Iceland has a small, open economy with low corporate tax rates, strong rule of law, and a government that actively supports entrepreneurship. For foreigners already living here (or planning to), starting a business can be a practical alternative to job hunting, especially in sectors where your skills fill a gap.
This article covers who is eligible to start a business in Iceland, the main business structures, how registration works, what it costs, and the tax and legal obligations that follow. It includes a table of contents for quick reference.
Table of contents
Before registering anything, you need the legal right to live and work in the country.
EEA and EFTA citizens can move to Iceland and start a business without a special work permit. You still need to register your address with Registers Iceland and obtain a kennitala (national ID number), but there is no separate business visa to worry about.
Non-EEA nationals need a valid residence permit before they can operate a business. The standard route is a work permit tied to self-employment, which requires demonstrating that the business activity serves Icelandic interests. Citizens of OECD countries who do not reside in Iceland but reside in another OECD member state can form limited companies in Iceland and serve as board members or managers under a general exemption from the Ministry of Industry and Commerce.
Everyone starting a business in Iceland needs a kennitala. If you do not have one yet, that is your first step. The process is outlined in our kennitala guide.
Iceland offers several business structures. The right choice depends on your risk tolerance, the scale of what you are building, and whether you plan to bring in partners or investors.
The einkahlutafélag (ehf) is by far the most common structure in Iceland. It offers limited liability, meaning your personal assets are protected if the business fails.
Requirement | Detail |
|---|---|
Minimum share capital | 500,000 ISK (as of March 2026) |
Capital payment | Must be paid in full at incorporation |
Registration fee | 140,500 ISK (as of March 2026) |
Board and management | Majority of directors must be domiciled in Iceland, or in an EU/OECD member state |
Documents | Articles of Association, Founding Agreement, minutes of founding meeting, Form 17.21, Form 17.27 (beneficial owners) |
Language | All company documents must be in Icelandic |
Processing time | 3 to 5 working days for electronic applications |
A state-authorised auditor or an independent professional must confirm that the share capital has been paid before registration is accepted. If you contribute assets other than cash, a lawyer or certified accountant must certify their value.
The ehf is the right choice for most foreign founders. It is the structure banks and partners expect, and it provides clean separation between personal and business finances.
A sole proprietorship runs under your personal kennitala. There is no separate legal entity, which means no minimum capital requirement but also no liability protection. You are personally responsible for all debts.
Registration costs 73,500 ISK (as of March 2026) through RSK (the Directorate of Internal Revenue). This structure suits freelancers, consultants, and anyone testing a small business idea before committing to a full company.
Two or more people can form a general partnership. There is no minimum capital requirement, but all partners share unlimited personal liability. Registration costs 95,500 ISK (as of March 2026).
Partnerships are uncommon for foreign founders. The unlimited liability and shared decision-making make an ehf a better fit in most cases.
A hlutafélag (hf) is designed for larger companies that may issue shares to the public. The minimum share capital is 4,000,000 ISK, and regulatory requirements are significantly heavier. Unless you are raising substantial capital from multiple investors, an ehf is almost certainly the better option.
If you already run a company abroad, you can register an Icelandic branch instead of forming a new entity. The branch operates under the parent company's liability. Registration costs 256,000 ISK (as of March 2026), and processing typically takes 10 to 12 business days. This route is most relevant for established businesses expanding into the Icelandic market.
All business registration in Iceland goes through RSK (the Directorate of Internal Revenue). The process differs slightly by structure, but the general steps are the same.
You cannot register a business without an Icelandic ID number. If you have already registered your legal domicile in Iceland, you have one. If not, see our kennitala guide and address registration guide.
For an ehf, you need Articles of Association (samþykktir), a Founding Agreement (stofnskrá), minutes of the founding meeting (stofngerð), and completed Forms 17.21 and 17.27. All documents must be in Icelandic. Most founders hire a lawyer or use an accounting firm to prepare these.
For a sole proprietorship, the paperwork is simpler. You fill out Form RSK 5.02, either online or by emailing a scanned copy to fortaekjaskra@rsk.is.
Deposit the minimum 500,000 ISK into the company's bank account. You need an Icelandic bank account for this. A certified auditor or independent professional must verify the deposit.
Electronic registration is the fastest route. For an ehf, all parties must have Icelandic electronic ID (rafræn skilríki). If you do not have electronic ID yet, you can submit paper forms to RSK at Katrínartúni 2, 105 Reykjavík.
Processing takes 3 to 5 working days for electronic ehf applications. Sole proprietorship registrations typically take 1 to 14 business days.
If your annual revenue will exceed 2,000,000 ISK, you must register for VAT. This is a separate step using Form RSK 5.02 submitted to RSK. Even if you expect to stay below the threshold initially, register early if growth is likely. More on VAT in the tax section below.
Running a business in Iceland means working within one of the more straightforward tax systems in the Nordics. The rates are competitive, but reporting obligations are strict.
Limited companies (ehf and hf) pay corporate income tax at 20% (as of 2026). This rate has been stable since 2011 and is among the lowest in the OECD.
Partnerships and other legal entities taxed as separate entities face a higher rate of 37.6%. This is one of the reasons an ehf is the default recommendation for most business founders.
Sole proprietors do not pay corporate tax. Instead, business income is taxed as personal income through the standard income tax brackets.
The standard VAT rate is 24%. A reduced rate of 11% applies to certain goods and services, including food, accommodation, books, and some tourism-related activities.
Businesses with annual taxable revenue below 2,000,000 ISK are exempt from VAT registration. Once registered, VAT returns are filed and paid on a bimonthly basis. The payment deadline is one month and five days after the end of each two-month settlement period.
Employers (including self-employed individuals paying themselves a salary) must contribute to the social insurance system and mandatory pension funds. Employer pension contributions are a minimum of 11.5% of gross salary. For a detailed breakdown, see our Iceland tax system guide.
All Icelandic businesses must maintain proper bookkeeping records. Limited companies must file annual financial statements with RSK. Most small businesses hire an Icelandic accountant to handle compliance, which typically costs 150,000 to 400,000 ISK per year depending on transaction volume and complexity.
Not every business needs a special license, but many do. The requirement depends on your industry, not your business structure.
Sectors that commonly require operating licenses (rekstrarleyfi) include food service and hospitality, healthcare services, financial services, construction, tourism operations, and telecommunications. The licensing authority varies by sector. For example, restaurants and hotels apply to the local municipal health authority. Tourism operators apply to the Icelandic Tourist Board (Ferðamálastofa). Financial services are regulated by the Financial Supervisory Authority (Fjármálaeftirlitið).
Check early. Some licenses take weeks or months to obtain, and you may need to provide proof of qualifications or meet specific facility requirements. The island.is starting a business page lists requirements by sector.
Iceland has a small but active startup ecosystem, and several organisations offer free support to foreign entrepreneurs.
Innovation Center Iceland (Nýsköpunarmiðstöð Íslands) provides business mentoring, guidance on company registration, and applied research partnerships. Their English-language resources are specifically designed for foreign founders who have not yet mastered Icelandic.
Klak and the Icelandic Startup Community run events, networking meetups, and accelerator programs in Reykjavík. These are good places to meet local founders and potential collaborators.
The University of Iceland and Reykjavík University both have entrepreneurship programs and innovation hubs that are open to the public, not just students.
Regional development offices outside the capital area can help with funding applications, market research, and connections to local business networks. If you are considering setting up outside Reykjavík, contact your local office early.
Language matters more than you expect. All ehf documents must be in Icelandic. Most government correspondence arrives in Icelandic. You will need either strong Icelandic skills or a local accountant and lawyer from day one. See our guide to learning Icelandic for resources.
Hire an Icelandic accountant early. Tax filing, VAT returns, payroll, and pension contributions are all handled through RSK's systems, which are designed for Icelandic speakers. An accountant familiar with the system will save you time and avoid penalties.
Understand the social contract. Iceland has high employer obligations. Pension contributions, holiday pay, sick leave, and union rights are not optional extras. Factor these into your business plan from the start. Our worker rights article covers employer obligations in detail.
Budget for the setup costs. Between the share capital (500,000 ISK), registration fee (140,500 ISK), legal and accounting setup fees, and initial operating costs, expect to spend at least 1,000,000 to 1,500,000 ISK before earning any revenue from an ehf.
The market is small but connected. Iceland has roughly 394,000 people (as of January 2026). Word of mouth matters enormously. A good reputation builds fast, but so does a bad one. Invest in relationships.
Yes. EEA/EFTA citizens can start a business without a special permit. Non-EEA nationals need a valid residence permit first. Citizens of OECD countries can form limited companies and serve as board members even without living in Iceland, under a general ministerial exemption.
For an ehf (private limited company), the registration fee is 140,500 ISK plus 500,000 ISK in minimum share capital (as of March 2026). A sole proprietorship costs 73,500 ISK to register with no minimum capital. A general partnership costs 95,500 ISK.
For most foreign founders, an ehf (private limited company) is the best choice. It provides limited liability, is the structure that Icelandic banks and partners expect, and benefits from the 20% corporate tax rate rather than the 37.6% rate applied to partnerships.
Legally, all ehf documents must be in Icelandic, and most government communication is in Icelandic. In practice, many foreign founders operate primarily in English with the help of an Icelandic accountant and lawyer. English proficiency is high in Iceland, so day-to-day business with customers and partners often works fine in English.
Electronic registration of an ehf takes 3 to 5 working days. Sole proprietorship registration takes 1 to 14 business days. Branch registration for a foreign company takes 10 to 12 business days.
An ehf pays 20% corporate income tax, files bimonthly VAT returns (at 24% standard or 11% reduced rate), and must make employer pension contributions of at least 11.5% of gross salary. Sole proprietors pay personal income tax on business earnings instead of corporate tax.
Last updated: March 2026
