Introduction
Iceland is the world’s largest producer of electricity. Due to the country’s geothermal and hydroelectric energy source, the presence of abundant electrical power has led to the growth of the manufacturing sector. Iceland’s main service exports are tourism related services due to its exciting activities and overwhelming landscapes.
Iceland is also one of the most business-friendly countries in Europe. With low business tax rates, favorable infrastructure and setting up a business is made easy. Also due to the abundance of electrical power, it is a good place for entrepreneurs who want to set up a business.
To establish a business in Iceland, you will need a personal identification along with work permits which are required to be able to set up a company. Also, a legal structure should also be established for your business then finally register your business with the Director of Internal Revenue.
The necessary identification and permit which allows individuals to be able to establish a business successfully in Iceland are;
-Personal Identification Number. You are required to have a personal identification number if you wish to start a business in Iceland. It is a ten digit number that serves as a passage into Icelandic society. Its uses involves tax payments , insurance, bank transfer, car registration and so on.
Please note that a foreigner, who is not from a country of the European Economic Area (EEA) that plans to stay in Iceland for more than 3 months must acquire a residence permit. Although this is not applicable to citizens of the European Economic Area who want to stay in Iceland for more than 3 months, they are requested to visit the nearest police office and present their passport and other required documents to make an application to stay in Iceland for more than 3 months.
-Electronic Certificate. This is a necessary requirement for the basic day-to-day activities in Iceland. It is a security measure that makes use of your personal identification number, mobile phone and bank account to create an electronic proof of identification. It is used for making digital payments, and also for registration of your company activities with the Director of Internal Revenue.
-Licensing and permits.
Operating licenses are required for specific business sectors such as hospitality. This license is granted on fulfillment of some clearly defined rules. However you should confirm if a business license is applicable for your choice of business structure.
Now that you are familiar with the use of personal identification numbers and licenses, the next step is to select a business structure. You must choose the appropriate business structure that provides you with the right balance of legal protection and benefits. This is because your business structure affects everything about your company from the company’s day-to-day activities, to paying of tax and how much of your personal assets are at risk.
Here are the different types of business structures and some guidelines in selecting the right business structure for your startup company in Iceland.
-Individual Company. This is a company that runs on an individual personal identification number. This type of structure is applicable for personal operations which are intended for short term, minimum manual income and it involves low risk. There is no minimum capital and the registration fee is free.
-Private limited company. This type of business structure is allowed to have at least one shareholder and a minimum capital of ISK 500,000. However, there is no limit to the shareholders or the share capital and it is applicable to small and large companies. The registration fee is ISK 131,000 and it can be deducted from the deposited minimum capital share.
-Limited liability company. In this type of structure, the share capital of the company is divided into at least two parts and the minimum capital share should be at least ISK 4,000,000. This is applicable to larger businesses and extensive operations. The liability of the owner is limited to the company share and the registration fee costs ISK 256,000.
Now that you are aware of the different company structures and the required permit needed for setting up a company in Iceland, you can now go ahead with your company registration process.
How to register a company in Iceland
1. Search for a company name. Before deciding on a company name, you must first verify if the name is available or already in use by another company. The company name must be unique to only your company. It can be a combination of alphabet and numbers, as long as it is not already registered by another company.
2. Apply for registration. Application for registration is done through the Register of Enterprises (Director of Internal Revenue). In order for the registration to be approved, you must submit essential information regarding the company and the company’s owners.
- The details regarding the shareholders and the founders.
- The details about the company’s purpose.
- Notification of incorporation form.
- Agreement of Incorporation
- Articles of Association.
- Evidence of payment of share capital issued by the Certified Public Account.
Once the initial documents are approved, they are saved and sent to the appropriate party for electronic signing. Payment of registration fee and notification are sent to your bank account.
The register is also responsible for advertising the incorporation notice in the Official Gazette (journal). The registration fee is ISK 131,000 which also includes the company identification number fee which is ISK 5,000 and the fee for publishing the notification in the Official Gazette which is ISK 1,000.
3. Deposit initial capital in a bank account. Proof of payment of registration and notification fees are sent directly to the registrar’s home bank. The minimum share capital (ISK 131,000) must be in the bank account of one of the company’s founders until the company is registered and the business bank account has been opened.
The registration process takes 4-5 days after the payment has been made.
4. Obtain a VAT. The ValueAdded Tax number is required for companies who sell taxable goods and services. Applicants can notify the Directorate of Internal Revenue online. The Director of Internal Revenue will then assign the applicant company with a VAT number which will be used by the company for its economic activities.
Note that the taxation system in Iceland is a Pay-As-You-Earn system. Taxes are deducted from all taxable incomes and they consist of income taxes and municipal taxes which are normally paid at the end of every month. As an employer, you are expected to pay all withholding taxes and wage expenses such as pension payments and union payments.
Conclusion
The registration process is made easy since Icelandic people have a firm grasp of the English language. This is also applicable to most of the organizations you will be dealing with during the registration process. It is advisable to contact the organization directly for more information, advice and guidance.
FAQs
-Is it easy to start a business in Iceland?
It is very easy to establish a business in Iceland as long as you choose the appropriate legal structure that best suits the company’s activity.
-Is Iceland a good place to start up a business?
Due to its low tax rates, skilled labor, abundant supply of electrical power and so on, Iceland is a strong candidate for businesses to shortlist when looking for new locations to start up a business.
