Regulatory Constraints and Reliefs
As a member of the 18-nation European Economic Area (all EU states and three of the four EFTA states), Iceland implements the same basic liberal business philosophy as the European Union. Except in a few limited areas, all EU commercial legislation and directives take effect in Iceland. Consequently, Iceland makes an ideal springboard for tariff-free access to the major EU market area, as well as a fully competitive location for EU companies to operate.

Exchange Controls: No restrictions are imposed in Iceland on buying or selling of foreign exchange.

Foreign Ownership of Business: In principle, foreign ownership of business is unrestricted. However, some limitations apply to specific sectors, namely fishing, primary fish processing, energy production and aviation.

A wide range of portfolio investment options are available through licensed securities trading companies.

Official Attitude and Incentives
Iceland has systematically made its business environment increasingly attractive for investment and location, among other things with the series of tax cuts which now give Iceland one of the lowest levels of corporate income tax in Europe.

Advantages offered by Iceland for industrial investors include the most competitive electricity prices in Europe at 2-3 US cents/kWh for large industrial users, depending upon delivery terms, and industrial steam at 6 barg or USD 3 per metric tonne. Industrial sites with good natural harbours, for small and large ventures, are available in many parts of the country, and many local authorities have designed development strategies and scenarios which provide for new investments. Highly skilled labour is available, including experts in software and a wide range of research fields.

Special incentives are granted for film and TV production in Iceland, whereby 12% of total costs are refundable. Production cost incurred in other EEA countries is also refundable within certain limits.

The Icelandic Tax System
The Icelandic tax system is relatively simple and effective. In the last few years the emphasis has been to simplify it further, reduce tax rates, broaden the tax base and conclude more bilateral taxation agreements, which will increase the competitiveness of Icelandic corporations and attract foreign investors.

In December 2001 Parliament passed a law to implement wide-ranging tax reforms, both for business and households. The reforms include a range of changes in tax rates and reference amounts, and abolition of inflation accounting for tax purposes and in accounting, which constitutes a large step in aligning the Icelandic tax system to that of other countries. Corporate income tax has been reduced from 30% to 18% as of January 1st, 2002, thereby ranking among the lowest tax rates within the OECD member countries.

Some features of Icelandic tax law:

• Corporate income tax of 18% on net income only levied by the state;
• Dividends received by corporations are not taxable. No requirements relating to percentage of stock ownership in the corporate payer apply;
• Consolidated returns available for corporations under 90% common control;
• No branch profits tax levied on repatriated profits from branches;
• Bilateral taxation agreements available;
• Foreign tax credit available to avoid double taxation in the absence of tax agreements;
• No legislation on controlled foreign corporations;
• No legislation on “thin capitalization”;
• No basket system regarding foreign tax credit.

Taxes on Businesses in Iceland
Companies resident in Iceland, and Icelandic branches of foreign resident companies, are liable for corporate income tax (national income tax) on their net earnings. In 2002 the corporate tax rate was 18%.

International Trading Companies, registered in Iceland but engaged in trading which does not involve Iceland, are liable for 5% corporate income tax. Companies in Iceland pay net worth tax, as do individuals.  Real-estate taxes are paid locally by businesses, along with local service charges.

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Personal Income Taxes in Iceland
Individuals resident in Iceland are liable to income tax at the rate of 38.54%, on all earned yearly income above ISK 809,616 (USD 7,845). An additional tax of 7% is levied on all earned income in excess of ISK 3,980,000 (USD 38,566) per annum for an individual, and on double that amount for a couple.

Personal income tax is withheld at source and paid as you earn. It is divided into national income tax (25.75%) and municipal income tax (averaging 12.79%), making a total of 38.54%.

Financial income of individuals is taxed at the rate of 10%.

Resident individuals are taxed on their worldwide income.

Non-resident individuals become tax residents if they stay in the country for more than 183 days out of a 12-month period.

A non-resident individual is taxed on Icelandic-sourced income.

1) Exchange rate (average buying/selling)on March 1, 2003: USD 1 = ISK 79.
 

Financial Reporting and Audit Requirements in Iceland
Every company resident and operating in Iceland must submit annual accounts that comply with statutory accounting rules and disclosures, and reflect a true and fair view of the company’s assets, liabilities, results and financial position. Presentation is modelled upon standard EU requirements. The requirement of adjustments being made to revalue assets and liabilities on the principles of inflationary accounting was abolished in 2001.

Companies above a certain size which are publicly quoted and have subsidiaries are required to prepare consolidated group accounts. Tax returns are filed with local tax authorities.

Corporations registered in Iceland, with the main part of their income from foreign sources, can apply to keep their books of accounts and records in a foreign currency.

Limited liability companies registered on an official financial market are allowed to issue their share capital in a foreign currency. Other limited liability companies with the main part of their income from foreign sources will be able to issue their share capital in a foreign currency provided that certain requirements are met.

Guidance and Services for Potential Investors in Iceland
To co-ordinate efforts for attracting inward investments to Iceland, the Ministry of Industry and Commerce and the National Power Company have established a “one-stop shop,” the Invest in Iceland Agency. The Agency is organised into two independent departments. Dedicated services for potential investors in power-intensive industries are provided by Invest in Iceland Agency – Energy Marketing, while Invest in Iceland Agency – General Investments is responsible for attracting inward investments in other fields than power-intensive industries. The Invest in Iceland Agency offers free and confidential services to potential investors on all aspects of location, arranges contacts with relevant authorities and companies, fact-finding visits, etc.

For the latest update of these informations, check the Invest in Iceland Agency website: http://www.invest.is

Invest in Iceland Agency – General Investments
Skolavordustigur 11
101 Reykjavik
Tel.: 561 5200
Fax: 561 5205
E-mail: info@invest.is

Invest in Iceland Agency – Energy Marketing
Haaleitisbraut 68
103 Reykjavik
Tel.: 515 9000
Fax: 515 9003
E-mail: mil@lv.is

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