The Icelandic business environment is fast moving and focused on business. Iceland presents international businesses with a wide range of opportunities for different activities and operations in a highly developed economy. Furthermore, Iceland offers an attractive fiscal and tax environment to locate holding companies and multinational headquarters with world-wide activities. Its infrastructure, services and smooth administration meet the highest international standards with respect to efficiency and services rendered by well-educated people.

Foreign companies, which are interested in setting up a business in Iceland, can structure their business arrangements in many different ways. Some of these options include the start-up of a new foreign subsidiary, the formation of a joint venture with an existing foreign or an Icelandic company, setting up a branch, or the acquisition of an existing Icelandic company by stock purchase. Sole proprietorships are sometimes used for small businesses run by a single entrepreneur as there are no capital requirements. Such personal business entity can be incorporated tax-free if certain requirements are met. Icelandic company law is in conformity with current requirements of the company law provisions of the Agreement on the European Economic Area. 
Among business forms in Iceland available for international entities are:

• Public or private limited companies
• Partnerships
• Branch
• Joint venture
• European company (SE)

The most common business forms chosen by foreign entities are partnerships and the private limited company. It takes only 1-2 days to form a company in Iceland.
In the comparison table on page 4 the public and private limited company, partnerships and branch are compared with respect to requirements relating to registration, registration fees, liability, capital, management, taxes and accounting.

If a foreign entity is interested in sales activities in Iceland without establishing a business a consideration must be given to whether or not the activities could constitute a permanent establishment. When determining whether or not a permanent establishment has been established, definitions in double taxation conventions are taken into consideration. Permanent establishment includes especially a place of management, a branch, an office, a factory, a workshop, an installation or structure used for the exploration of natural resources, a mine, an oil or gas well, a quarry or any other place of extraction or exploitation of natural resources. Temporarily projects do not constitute a permanent establishment. A building site or construction or installation project constitutes a permanent establishment only if it lasts for more than 12 months. 
Even if activities do not constitute a permanent establishment of a foreign entity, it may need an Icelandic ID number and a value added tax number. A foreign entity may also use the ID number of an Icelandic agent that would be registered for the VAT number on behalf of the entity. 
A representative office is also available and is sometimes used in the initial stages of establishing a more permanent business in Iceland.

Stricter requirements apply for public limited liability companies than for private ones. Generally, public limited liability companies are intended for business operations of many parties that intend eventually to go public. The minimum capital requirement is ISK 4 million and stock certificates must be issued. At least two parties must establish the company. A minimum of two shareholders, at least one Manager and no less than three persons on the Board of Directors are required. The total cost of registering a public limited company is ISK 171,000. The profit of the company is subject to the 15% corporate income tax rate. The liability of individual shareholders is limited to their share capital.

-are the most popular business form in Iceland. The liability is limited to the share capital and the income tax rate is 15%. Dividend payments to individual shareholders are subject to 10% final capital tax. The total cost of registration amounts to ISK 88,500. A single party may establish a private limited company and be the sole shareholder. In such instances a single principal may constitute the board of directors and then there is no need for board or shareholder meetings as else would be the case. It is not obligatory to appoint a manager in private limited companies. Minimum capital requirement is ISK 500,000, which must be paid into the company prior to its registration at the Registry of Enterprises. Transfer of funds out of the limited company, whether private or public, is limited and has to be in accordance with rules on payment of dividends. Furthermore, there is a general prohibition against granting loans and guarantees.

-(sameignarfélög) of two or more parties can be established in Iceland and are registered at the Register of Firms of the relevant local District Commissioner. The total cost of registration is ISK 56,000 and ISK 5,000 for an ID number, which is applied for at the Registry of Enterprises. The liability of members of partnerships is unlimited, i.e. they guarantee the company's liabilities by means of their entire assets. In case of an adverse experience of operations unlimited liability may be an important disadvantage. The income tax rate of partnerships amounts to 23,5% if it has upon request on foundation been registered as a taxable entity, but alternatively individual members are taxed according to ownership interest in the partnership at 35,72% income tax rate, limited companies at the 15% rate and other partnerships at the 23,5% rate. Distributions of profits from partnerships are not subject to whithholding tax when the income has been taxed at the company level. There are no capital requirements for partnerships.

-(samlagsfélög) can be founded and registered in Iceland. There must be at least two members where at least one member of the partnership is unlimited liable of the partnership’s liabilities. Other members may limit their liability to their share contribution. A limited partnership may be registered as a taxable entity subject to an income tax rate of 23,5%. This type of company can be designed for an operation in a very flexible way, thereby making it desirable in many cases. The same registration process and expenses as for partnerships apply to limited partnerships.

Branches of foreign incorporated businesses with limited liability are registered with the Registry of Enterprises. For registration purposes of the branch the head office must file the following documents:

• A copy of the articles of association of the head office.
• The incorporation certificate of the head office.
• A letter of representation for the branch manager together with documentation that the branch manager meets the requirements as to residency, citizenship and solvency.
• The Financial Statements of the head office for the preceding year.

A registered branch must have a name, which includes the name of the foreign company. Note that documentation filed with the Icelandic authorities must be submitted in certified Icelandic translation. The total cost of registering a branch is ISK 171,000.

In international business, the term “joint venture” is often used to denote any kind of international business undertaking that involves participation by two or more parties of different nationality. No requirements apply in Iceland with respect to the local equity participation in the joint venture. There is no need to licence the joint venture or to publish the agreement. However, the participation of the foreign party may constitute a permanent establishment in Iceland. Most joint venture parties establish a company on the project. All available business forms in Iceland may be used for the joint venture. There is no separate legislation on joint ventures.

Since October 8th, 2004, it has been possible to establish a European public limited company in Iceland. The legal framework of the SE company is based on the EU directive No. 2157-2001 on Societas Europaea, but is to a large degree subject to national company law. The nationality of a SE company can be changed without liquidation and re-founding. The SE company must be registered at the Registry of Enterprises if the official address of the company is In Iceland. The minimum capital requirement is EUR 120,000. The same requirements apply with respect to financial statements and auditing as apply to other local public limited companies. An SE company registered in Iceland is subject to corporate income tax of 15%.

• The name of the company
• The address of the company
• The purpose of the company
• The share capital
• Founders of the company
• Members of the board
• The CEO of the company
• Who is authorized to sign on behalf of the company
• The CPA of the company

Lexista offers all necessary services regarding setting up að business in Iceland. All paper-work and documentation regarding the establishment of the company

• Application for an ID-number of the founders
• Address in Iceland available for the company
• Calculation of monthly salaries (income taxes and pay-roll taxes)
• Value added tax returns (6x a year)
• Book-keeping, annual account and tax return for the company in the year end
• Tax return for the founders
• Consulting on running the company if necessary
• Tax advice, both domestic and international
• Other legal services, such as contracts, litigation etc.
• Assistance in opening a bank account and getting an Internet bank access