Moving to Iceland to start a business means accepting a double gamble: that of a tiny but highly solvent market, and that of a natural and economic environment that is both demanding and exceptional. For an expatriate, the country offers a rare mix of stability, transparency, and innovation, with a very welcoming ecosystem for tech, sustainable, and creative projects.
This guide covers the essential aspects for evaluating starting a business in Iceland: residency requirements, choice of legal structure, tax system, associated costs, commercial real estate market, business culture, and startup ecosystem. It aims to provide the necessary benchmarks to judge whether this project aligns with your expatriation and to initiate the necessary steps.
Understanding the Icelandic context before diving in
Before talking about forms and legal statuses, you need to understand what the country represents for a foreign entrepreneur. Iceland has fewer than 400,000 inhabitants, a capital city that concentrates most of the activity, a very open but structurally volatile economy, and a society that is both ultra-modern and deeply marked by equality and proximity.
Six new sectors, including tourism and tech, have joined the traditional pillars of the economy.
The small size of the market almost always forces you to think international from the start. This is one of the hallmarks of the ecosystem: local startups, whether in gaming, fintech, or medtech, think about exporting very quickly, whether to Europe or North America, to which Iceland is ideally connected geographically and digitally (high-speed fiber optic cables).
A pro-business but costly environment
The country is often described as one of the most expensive in the world. Average salaries are high, commercial and residential rents are significant, and importing goods makes almost everything more expensive. In return, local purchasing power is high, the demand for quality services is real, and energy – 100% renewable – remains extremely competitive, which makes Iceland an interesting playground for energy-intensive activities (data centers, industry, industrial heat processes, etc.).
For an expatriate, entrepreneurial success requires rigorous preparation. It is essential to arrive with a solid business plan, sufficient funding, and a clear vision of your target clientele. This can be local and high-end, B2B-oriented, tourist-focused, or completely international (for example, via SaaS, remote consulting, or selling digital products).
Residence status, visa, and the link to entrepreneurship
Creating a company in Iceland does not automatically grant a right of residence. The paths are separate, and you need to think about your entrepreneurial project alongside your immigration status.
EEA/EFTA, Non-EEA: Two very different frameworks
Citizens of the European Economic Area (EEA) and EFTA can stay in Iceland for up to three months without any special formalities, then register for a longer stay. They have the right to start a business and engage in economic activity without a specific visa, although certain formalities remain (registration, ID number, etc.).
For non-EEA/EFTA nationals, there is no residence-by-investment program. Obtaining a residence permit is only possible through the usual channels: employment, family reunification, studies, or entrepreneurship. For the latter, simply creating a company is not enough; you must submit a permit application demonstrating the project’s viability, its benefit to the Icelandic economy, and the applicant’s financial means.
The processing time for a residence permit based on employment is typically around 90 days from when the application is complete, which requires good planning if you are making company creation conditional on your physical presence in the country.
The “Remote Work” visa: useful, but not for local entrepreneurship
For digital nomads, Iceland has set up a “Long-Term Visa for Remote Work” (often called a digital nomad visa), which allows a non-EEA/EFTA person to live in the country for up to 180 days while working remotely for employers or clients abroad. Conditions are strict: minimum monthly income of about 1,000,000 ISK for a single person, no activity on the Icelandic labor market, and no access to the national ID number or public services.
This visa does not allow you to work for Icelandic clients or be employed locally. It is therefore not suitable for creating a business rooted in Iceland, but rather serves to test life there while maintaining a professional activity entirely abroad.
Choosing the right legal form for your company
Icelandic law offers several forms of organization. For an expatriate, it is crucial to choose a vehicle compatible with your project, tax situation, and risk exposure.
Overview of possible forms
Here is a summary of the main accessible structures:
| Legal Form | Minimum Capital | Liability | Corporate Income Tax Rate |
|---|---|---|---|
| Private Limited Company (ehf.) | 500,000 ISK | Limited to contributions | 20% |
| Public Limited Company (hf.) | 4,000,000 ISK | Limited to contributions | 20% |
| Sole Proprietorship | None | Unlimited | Taxed at the individual level |
| Partnership | None | Unlimited in principle | 36–37.6% or at partner level |
| Cooperative | Variable, min. 15 members | Limited to share capital | 20% |
| Registered Foreign Branch | No minimum capital | Combined with parent company | Rate depends on parent status |
The vast majority of entrepreneurs, Icelandic and foreign alike, opt for the private limited company (ehf.), which is flexible, well-known to banks and investors, and tax-advantageous.
The private limited company (ehf.): the standard tool for expatriates
The private limited company offers several advantages for an expatriate:
– A single founder and a single shareholder are sufficient.
– The minimum capital (500,000 ISK) remains relatively accessible.
– Liability is limited to contributions.
– The corporate income tax rate is 20%, among the lowest in Europe.
– Governance rules are relatively light, especially with a small number of shareholders.
The entire share capital must be paid up before the company is registered. Although this sum may represent an initial financial effort, especially for very small projects, it then becomes available to fund the company’s needs after registration.
Important point: at least one founder of a limited liability company must be a resident of Iceland, a citizen and resident of the Faroe Islands, or a citizen and resident of an EEA or EFTA country (with possible exceptions granted by the Minister of Commerce). In practice, a non-EEA expatriate will often need to partner with someone meeting this criterion or use a legally structured nominee director service.
Public limited company, partnerships, and other options
The public limited company (hf.) is more suitable for projects requiring a lot of capital and many shareholders (stock market listing, public fundraising). The requirements for capital (4,000,000 ISK), governance (at least three directors, a CEO), and transparency are significantly higher. For an expatriate just starting out, this is generally not the right entry point.
Partnerships and sole proprietorships, with unlimited liability, should be used with caution in cases of high risk exposure (commercial premises, employees, B2B contracts). They are generally suited to very small or highly professionalized activities, and their tax regime may be less advantageous depending on the situation.
Finally, a subsidiary of a foreign company can be a good option if you already have a structure in another country and simply want to open a branch. The branch is not a separate legal entity: the parent company remains liable, which simplifies certain aspects but increases direct risk.
Registration process and basic formalities
Opening a company in Iceland is considered relatively simple and quick, provided you have the right prerequisites (residence status, local partner if needed, complete documents).
The “kennitala”: administrative key
Every person and company in Iceland is assigned a ten-digit identification number, the kennitala. For an expatriate entrepreneur, you need to distinguish between:
– the personal kennitala, necessary for almost everything (banking, taxes, insurance, contracts, phone, etc.);
– the company’s kennitala, created upon registration.
EEA/EFTA nationals request this number from Registers Iceland. Non-EEA/EFTA nationals go through the Directorate of Immigration, often in connection with their residence application. Processing usually takes about ten days once documents are complete.
Another key tool is the electronic identification (Auðkenni), linked to an Icelandic SIM card or a banking device. It is essential for digital signing, online tax filings, opening a bank account, etc.
Typical steps for a private limited company (ehf.)
The process roughly goes like this:
To create an ehf. (einkahlutafélag) in Iceland, the company name must end with “einkahlutafélag” or its abbreviation “ehf.” It must conform to the Icelandic language, not be misleading, avoid being too generic, and be sufficiently distinct from existing names. If a foreign version of the name is used, it must be a literal translation of the main Icelandic name.
2. Drafting the articles of association and incorporation Registration is done with the Directorate of Internal Revenue (Ríkisskattstjóri / RSK) – the company registry. Using electronic identification, it is possible to automatically generate the articles of association, incorporation deed, and required forms.
3. Deposit of share capital The minimum 500,000 ISK must be deposited in a bank account (or attested), knowing that registration fees (approximately 131,000 ISK for an ehf.) can be deducted from this amount.
4. Submission of the application and payment of fees The application (registration form, information on beneficial owners – form RSK 17.27, proof of capital, etc.) is submitted to RSK, with fee payment to the bank account indicated by the administration.
This is the timeframe, in business days, to obtain the kennitala after a complete electronic submission.
6. VAT registration if applicable As soon as taxable turnover over 12 months exceeds 2,000,000 ISK, VAT registration becomes mandatory. Some activities are directly subject, while others are exempt or at a reduced rate.
7. Opening a professional bank account You need a legal domicile in Iceland, the company’s kennitala, proof of registration, and, for non-EEA nationals, a valid residence/work permit. Non-residents and those without a kennitala cannot open an account with a standard Icelandic bank, hence the importance of coordinating the visa + company + bank timeline.
Timelines, costs, and support
In practice, a simple company (ehf.) can be administratively operational in one to two weeks, excluding residence permit processing times. For a foreigner not fluent in the language or local customs, it is often wise to use a lawyer, an accounting firm, or a specialized service provider (which can offer packages including registered office, secretarial services, banking support, and even a nominee director).
Organizations like Business Iceland or KLAK – Icelandic Startups provide free guidance to the right contacts and offer guides in English.
Corporate taxation: a simple and competitive structure
Icelandic corporate taxation is relatively transparent, with a moderate base rate and incentive measures for innovation and certain sectors.
Corporate income tax and dividends
Resident companies – i.e., those incorporated in Iceland or managed from Iceland – are taxed on their worldwide income. The standard rate for limited liability companies (ehf. and hf.) is 20%. Certain entities treated as partnerships and taxed as separate entities may be taxed at 37.6%, making the ehf. form even more attractive.
The tax system is classic: the company pays tax on its profits, then shareholders are taxed on dividends received. Mechanisms exist to limit this double taxation, including deductibility of dividends from certain subsidiaries and a full exemption on capital gains from the sale of shares in qualified Icelandic or foreign companies, for EHF and HF entities.
Distributed dividends are subject to withholding tax:
– 22% in principle;
– 20% for non-resident corporate shareholders;
– 0% for Icelandic companies (public or private) receiving dividends, subject to tax filing conditions.
For resident companies in an EEA country, the Faroe Islands, or the United Kingdom, the withholding is not necessarily final: by filing a return in Iceland, the effective rate on dividends can be reduced to 0%.
VAT and other levies
The VAT system has two tiers:
| Type of VAT | Nominal Rate | “Effective” Rate from a Tax-Inclusive Price |
|---|---|---|
| Standard Rate | 24% | 19.35% |
| Reduced Rate (certain goods/services, tourism…) | 11% | 9.91% |
VAT registration is mandatory once taxable turnover exceeds 2,000,000 ISK over 12 months, with standard filing and invoicing obligations. Some services (long-term residential rental, for example) are exempt.
Companies also bear:
– a payroll tax (6.35% of salaries from 2022 to 2026, with an additional 0.65% for fishermen);
– employer pension contributions (at least 11.5% of gross salary, plus 4% paid by the employee, for a total minimum of 15.5%);
– possibly, a financial activities tax for relevant entities.
Tax incentives: innovation, green, audiovisual
Iceland has built a range of targeted incentives, useful if your project touches on R&D, digital, film, or music.
Some key measures:
| Type of Incentive | Beneficiaries | Main Advantage |
|---|---|---|
| R&D Tax Credit (recognized innovative companies) | SMEs and large companies | Deduction of 35% (SMEs) or 25% (large) of project expenses, up to 1.1 billion ISK/year |
| R&D Incentive “defined innovation” | Certified companies | 15% deduction of R&D expenses from CIT, with refund if credit is excess |
| Green Asset Super-Depreciation | Limited liability companies | Additional 25% depreciation on certain green investments |
| Film/TV Refund | Audiovisual productions | 25% refund of production costs in Iceland (35% for children’s films) |
| Music Recording Refund | Published recordings | 25% refund of recording costs in Iceland |
For expatriates focused on film, music, video games, or deeptech, these levers can significantly improve a project’s profitability, provided strict criteria are met (level of spending in Iceland, prior application, recognition by the Icelandic Centre for Research, etc.).
Setup and operating costs: anticipating the high cost of living
One of the main pitfalls for a foreign entrepreneur is underestimating the real costs, especially in Reykjavik and its region. Salaries, commercial rents, and daily life are significantly higher than the European average.
The average gross salary exceeds 750,000 ISK per month, with large variations by sector (a fish factory worker earns around 380,000–480,000 ISK before taxes). Personal income tax is progressive, with several brackets and a reduction via a personal tax credit.
The employer also bears the payroll tax (6.35%) and at least 11.5% pension contribution, making the total cost much higher than the gross salary. For a startup, each hire must be carefully calibrated.
Rent and commercial real estate
The commercial real estate market is experiencing sustained growth, driven by logistics, tourism, and demand for modern, sustainable spaces. Gross yields on commercial real estate typically range between 5.5% and 7%, or even higher for small hotels or guesthouses in tourist areas.
For an entrepreneur, selecting an office or workshop should primarily be based on two factors: property availability and cost per square meter. It is important to note that these criteria vary significantly by geographical location, e.g., between central Reykjavik, its outskirts, and other regions of the country.
Some order-of-magnitude figures from the market (mainly residential, useful for estimating commercial rents of comparable size):
| Type of Property (residential, indicative) | Location | Average Monthly Rent (approx.) |
|---|---|---|
| 1-bedroom apartment | Central Reykjavik | 250,000–300,000 ISK |
| 3-bedroom apartment | Central Reykjavik | 400,000 ISK and up |
| 1-bedroom apartment | Akureyri | ~220,000 ISK |
Professional premises that are well-located, modern, with good connectivity and parking, are negotiated at at least equivalent levels, often higher for prime spaces. The logistics market, particularly warehouses, is undersupplied: in spring 2025, there were only about thirty large warehouses available for rent across the entire country.
Add to this:
The total cost of a commercial real estate transaction in Switzerland can exceed 5% of the purchase price, including taxes and fees.
Business property: buying vs. leasing
For some expatriates, especially investors, buying a property (hotel, small office building, warehouse) and housing their business there can be appealing. However, access to property ownership by non-EEA non-residents is regulated: a permit from the Minister of Justice is required, with surface area limits (up to 25 hectares for direct economic activity like a hotel, 3.5 hectares without an economic project, with a prohibition on owning other properties). Agricultural land is reserved for Icelandic citizens.
For a non-EEA entrepreneur just starting out, leasing is therefore generally simpler, especially in the capital region. Specialized platforms and players like Croisette | Knight Frank facilitate the search, and coworking solutions in hubs like Gróska allow for a lower-cost start.
Opening a bank account, managing cash flow
The banking relationship is a sensitive point for foreign entrepreneurs. Icelandic banks require, to open an account, a kennitala (personal and/or company) and, in practice, a local address and a clear residence status. It is very difficult to open a professional account remotely before being settled and identified in the Icelandic system.
The main retail banks (Landsbankinn, Íslandsbanki, Arion Bank) offer standard professional accounts with very developed online services and interfaces often available in English. The typical process:
– obtain a kennitala and e-ID;
– appointment (often in person) with ID, proof of address, company documents, activity description;
– compliance review (KYC, anti-money laundering);
– account opening, then card issuance after a few days.
For international flows, many entrepreneurs combine an Icelandic account (for salaries, expenses, local clients) with a European multi-currency account with a fintech (e.g., non-Icelandic European IBAN): this does not replace a local account but facilitates cross-border receipts and payments.
Market, promising sectors, and strategic positioning
Iceland cannot be approached as a mass market. The population is small, with more than 65% concentrated in the capital region, and many niches are already occupied by very experienced local players. However, certain sectors are clearly under tension favorable to new initiatives, especially if they are international in ambition.
Tech, innovation, and startups
The country ranks among the top in the world for number of startups per capita. Reykjavik is establishing itself as a startup hub that is “purpose-driven” in:
– clean energy and climate;
– fintech and digital financial services;
– gaming and creative industries;
– biotech and medtech.
Major success stories illustrate this dynamic: an online video game publisher maintained for over twenty years that has become a true export product, or a medtech specializing in tissue regeneration from fish skin, which became a unicorn following a billion-dollar acquisition by a foreign industrialist.
For an expatriate, entering this ecosystem often involves integrating into support structures:
– KLAK – Icelandic Startups: free support, thematic accelerators (Startup SuperNova, Hringiða for circular economy), idea competitions (Gulleggið), Nordic network.
– Startup Reykjavik: 10-week program with intensive mentoring and seed investment, supported by a major local bank.
– Startup Energy Reykjavik: for energy and climate projects, with a start-up ticket.
– Startup Social, university incubators, hubs like Gróska or Innovation House, etc.
Venture capital funds like Crowberry Capital, Brunnur Ventures, or Frumtak Ventures complete this landscape, often syndicating with Nordic or European investors.
Tourism, hospitality, leisure
Tourism became the country’s leading export industry before the pandemic, with several million visitors per year and a strong recovery since. Most flows go through the Reykjavik region and classic circuits (Golden Circle, South Coast, etc.).
Opportunities for an expatriate:
Three strategic axes for developing a distinctive, high-value-added tourism offering.
Development of boutique hotels, themed guesthouses, and thematic stays in areas where supply is still limited.
Organization of high-value-added activities: specialized guiding, wellness, small-group adventure, or scientific tourism.
Offering solutions to sector players: booking services, digital tools, and international marketing.
The regulatory framework for short-term rentals is strict (limited number of days, mandatory licenses), and tourism real estate is closely monitored by authorities, especially to avoid distortions in the residential market. This sector must therefore be approached with a long-term strategy, well-documented and compliant with local rules.
Logistics, data centers, sustainable industries
With its almost exclusively geothermal and hydropower energy, at very competitive prices for large consumers (2 to 3 US cents/kWh for some industrial users), Iceland has been attracting data centers and “green” heavy industries for several years. Industrial parks linked to geothermal sources allow heat and electricity to be valorized in a logic of industrial symbiosis (circular economy, CO2 use, waste valorization).
For a foreign entrepreneur, the capital entry tickets are high, but there is room for ancillary activities: data center services, energy optimization software, environmental monitoring solutions, pilot projects in hydrogen, green ammonia, biotechnologies related to microalgae, etc.
Business culture: what an expatriate needs to know
Success in Iceland does not rely solely on the quality of the idea or business plan: local business culture matters enormously. It is based on a few structuring principles.
Egalitarianism, horizontality, and trust
Icelandic society is often described as “classless”, with very flat hierarchies. At the office, it can be hard to distinguish the CEO from the rest of the team. Informal address (using first names), easy access to managers, open questioning of decisions, and consensus-seeking are the norm.
For an expatriate used to very hierarchical cultures, this means:
– accepting that a junior employee may openly challenge a decision without it being seen as insubordination;
– not relying on formal status but on competence and the ability to provide solutions;
– favoring transparency and information sharing.
Icelanders value action and problem-solving more than meticulous planning. Their approach is sometimes summed up as “10% planning, 80% execution, 10% error correction.” So you need to be ready to iterate quickly, without paralyzing projects under layers of procedures.
Icelandic approach to project management
Direct but non-aggressive communication
The communication style is very direct: things are said as they are, without beating around the bush or excessive politeness. Superlatives, endless small talk, and flattery are frowned upon, but this does not allow for aggressiveness. Frankness is a sign of respect, not a license to humiliate.
Oral agreements carry legal weight, although written contracts remain essential, especially for a foreigner. It is therefore important to be precise, clarify what is understood, and formalize quickly.
Punctuality, work-life balance
Punctuality matters a lot: arriving late without notice is very poorly perceived. Workdays are generally concentrated (8am–4pm or 9am–5pm), with a strong emphasis on work-life balance. Flexibility (telecommuting, flexible hours) has become a right in many cases, governed by collective agreements.
Summer vacation periods (mid-June to mid-August) as well as the weeks around Christmas and Easter are often marked by a general slowdown in activity. It is crucial to factor these windows of lower availability into the planning of a product launch or fundraising calendar to optimize impact and reception.
Social responsibility, equality, and environment
Sensitivity to social and environmental responsibility issues is very high. The country has long been at the top of corruption perception rankings, and the private sector was profoundly marked by the 2008 banking crisis, which resulted in strong social demand for transparency and ethics.
In terms of equality, Iceland consistently ranks among the most advanced countries, especially regarding gender parity. A pay equity certification policy requires companies to prove the absence of unjustified gaps. Ignoring these issues, or practicing misaligned HR policies, can quickly harm your image and complicate recruitment.
Recruiting locally: strengths and constraints
The Icelandic labor market is skilled, highly connected, and largely English-speaking. For an expatriate, hiring locally offers many benefits, but also some challenges.
Workforce and legal framework
The workforce is highly educated, with a high level of English proficiency, especially in tech, finance, and services. Icelanders are familiar with new technologies, collaborative tools, and agile methods.
Labor law is governed by a comprehensive body of laws and supplemented by very structuring collective agreements, which set minimum wages by sector, working hours, overtime rules, leave, etc. There is no national statutory minimum wage, but the negotiated minimums apply in practice.
Average limit on weekly working hours, including overtime, calculated over a four-month period.
Recruitment methods for a foreign company
If your company is purely Icelandic, you will hire locally under this regime, declaring your employees to the tax and social authorities, managing payroll and mandatory contributions. Using a payroll provider or an accountant is highly recommended to avoid calculation or scheduling errors (penalties for late filings can be significant).
If your company is based abroad and you do not wish to immediately create an entity in Iceland, you can use a local Employer of Record (EOR). The EOR acts as the legal employer of your Icelandic employees, handling contracts, payroll, and regulatory compliance, while you retain operational control of their work. This solution allows you to test the Icelandic market or build a small team without incurring the costs and procedures of setting up a subsidiary, for a monthly subscription per employee.
Independent contractors and freelancers certainly exist, but the line with employment is monitored: if a pseudo-independent contractor effectively works as an employee (hours, location, company tools, subordination), the administration can reclassify the relationship, with retroactive effect on contributions and risk of penalties.
Leveraging the ecosystem and public support
One of the major advantages of Iceland for an expatriate entrepreneur lies in the density of its support ecosystem. In a country where “everyone knows everyone,” access to decision-makers, mentors, and support programs is easier than in large markets.
Some levers to activate from the start:
Main organizations and networks to facilitate investment, innovation, and settlement in Iceland.
Official entry point for foreign investors. Provides sector information, guidance on incentives, and facilitates contacts with local authorities.
Offers strategic support, access to accelerators, and a vast network of mentors and investors for startups.
Includes the University of Iceland, Reykjavik University, RANNIS, and Reykjavik Science City. Enables R&D partnerships, access to talent, and co-funding of projects.
Structures like the Hreiðrið Entrepreneur Center (South Iceland) offering workspaces, coaching, and small funding, often at moderate costs.
Platforms like InterNations and online communities for informal support, feedback on administrative procedures, and daily life.
The landscape of grants and soft loans is dense: funds for regional employment, innovation support, participation in European programs (EUROSTARS, Horizon Europe) via Icelandic agencies. For an expatriate, this represents a learning curve, but public bodies are accustomed to working in English and welcoming international project leaders.
Managing risks: market size, volatility, and exchange rates
Even with a favorable environment, doing business in Iceland is not without specific risks.
The Icelandic market presents four major risks to integrate into a business model: its small size forces rapid internationalization; its macroeconomic and monetary volatility exposes to external shocks and exchange rate risk; its dependence on tourism and fishing increases sector vulnerability; and the low liquidity of its real estate and financial markets can complicate exit from investments.
The recommendations that recur in investment analyses: adopt a long-term horizon, focus on assets or sectors aligned with the country’s major structural trends (sustainable tourism, logistics, green energy, tech, services to existing clusters), diversify currencies, and, when relevant, hedge exchange rate risks.
In conclusion: for which expatriate profile does Iceland make sense?
Starting a business in Iceland is not an easy “lifestyle business” project. The cost of living and working, the tax and administrative requirements, the need to manage your residence status, and the geographical distance demand preparation and real resilience.
On the other hand, for an entrepreneur:
To integrate and succeed, a partner must be able to embrace an egalitarian and direct corporate culture with a strong commitment to sustainability. Their business model must be able to reach an international audience and not rely solely on local volume. Finally, they must be willing to invest time in networking, support programs, and institutional partnerships.
Iceland offers a rare mix of legal certainty, transparency, access to low-cost green energy, and advanced ecosystems in tech, creative industries, health, and cleantech.
This small country, with a very high human capital, can then become much more than an expatriation base: a real springboard for building an ambitious company on a Nordic and global scale.
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