Iceland (IS)
Iceland is a North Atlantic volcanic island nation of extraordinary natural beauty — home to geysers, glaciers, lava fields, midnight sun, the Northern Lights, and some of the world's most active volcanoes.
Capital: Reykjavik
Region: Europe
Language: Icelandic
Currency: ISK (kr)
Cost of living: Expensive (index 85)
Emergency: 112
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Business Setup
Start a business or go freelance in Iceland.
🧑💻 Freelancer / Self-Employed Guide
Steps to register:
- 1 Register your kennitala-based einstaklingsrekstur (sole trader) at island.is using Rafræn skilríki. Free and takes 15–30 minutes.
- 2 Register for VSK (virðisaukaskattur — VAT) at skatturinn.is if your annual turnover will exceed ISK 2,000,000 (2026 threshold). Below this, VSK registration is optional.
- 3 Open a separate business bank account — recommended for clean accounting even as a sole trader.
- 4 Set up bookkeeping (bókhald) — mandatory. Use software such as Mentor, Centiga, or hire an accountant (endurskoðandi/bókhaldari).
- 5 Register for B-skattur (advance tax for self-employed) at skatturinn.is — declare expected annual income so tax is paid monthly rather than in a lump sum at year-end.
- 6 Join a trade union (stéttarfélag) for self-employed or freelancers — access to unemployment insurance requires union membership.
- 7 Confirm pension fund contributions — self-employed must make their own lífeyrissjóður contributions (the mandatory 15.5% combined rate applies, but as self-employed you pay both shares).
- 8 Consider getting a separate einkahlutafélag (ehf.) if income grows significantly — the 20% corporate tax rate vs. up to 37.98% personal income tax can make an ehf. more efficient.
Tax registration
Sole traders (einstaklingsrekstur) are automatically part of the personal tax system. Declare business income on your annual skattframtal (tax return) at skatturinn.is. Pay B-skattur in monthly advance payments. Self-employed persons with turnover above ISK 2,000,000 must register for VSK (VAT) and file quarterly VSK returns.
VAT threshold
ISK 2,000,000 annual turnover. Below this threshold, VSK registration is optional (can be voluntary). Above this threshold, registration is mandatory. VSK standard rate: 24%; reduced rate: 11% on qualifying goods/services (food, books, hotel). File VSK returns quarterly at skatturinn.is.
Invoicing
All invoices must include: your name and kennitala (or company name and kennitala/kt. number), address, buyer's name and address, invoice date, sequential invoice number, description of goods/services, amounts, VSK amount if applicable, and total. Electronic invoicing is standard. If registered for VSK, invoices must show the VSK breakdown.
Social security
Self-employed individuals must pay both employee and employer shares of tryggingagjald (social insurance: 4% + 6.35% = 10.35% total). Pension contributions: must contribute both employee (4%) and employer (11.5%) shares = 15.5% of earnings to a lífeyrissjóður. Join a self-employed stéttarfélag for unemployment insurance eligibility. Parental leave (fæðingarorlof) benefits are available to self-employed through the Fæðingarorlofssjóður.
💡 Iceland's small market means many freelancers serve both the domestic market and international clients. International invoicing is common and generally straightforward — use Wise for receiving foreign currency payments efficiently. The corporate ehf. structure (20% tax on retained profits) becomes significantly more efficient than the top personal income tax rate (37.98%) once annual profits exceed approximately ISK 4,000,000–5,000,000. Consult a licensed endurskoðandi (accountant) as soon as your business generates meaningful income.
🏢 Business Structures
Einstaklingsrekstur · Einstaklingsrekstur
Sole trader / Self-employed individual
ISK 0 (no minimum capital)
Min. capital
Can register same day via island.is with Rafræn skilríki. VSK (VAT) registration if needed: add 1–2 days.
Setup time
Liability: Unlimited personal liability — the owner is personally responsible for all business debts and obligations.
Setup cost: Free to register at Fyrirtækjaskrá (Company Registry) via island.is. A kennitala is used directly — no separate company kennitala needed for sole traders.
Best for: Freelancers, consultants, independent professionals, and trades people starting with minimal overhead. The simplest business form. Income is taxed as personal income.
Einkahlutafélag (ehf.) · Einkahlutafélag
Private limited company (Ltd.)
ISK 500,000 minimum share capital
Min. capital
Typically 3–5 business days for straightforward setups via island.is. More complex structures with legal counsel: 1–2 weeks.
Setup time
Liability: Limited — shareholders are not personally liable beyond their share capital contribution.
Setup cost: Registration fee at Fyrirtækjaskrá: approximately ISK 15,000–20,000. Legal assistance: ISK 50,000–200,000+. Plus ISK 500,000 minimum share capital.
Best for: Most growing businesses that want limited liability. Essential when hiring employees in most sectors. Corporate income tax rate: 20% — attractive compared to personal income tax rates.
Hlutafélag (hf.) · Hlutafélag
Public limited company
ISK 4,000,000 minimum share capital
Min. capital
2–4 weeks including articles of association preparation.
Setup time
Liability: Limited — shareholders not personally liable beyond their investment.
Setup cost: Registration fees plus legal/accountancy fees: ISK 300,000–1,000,000+. Plus ISK 4,000,000 minimum share capital.
Best for: Larger companies, those planning public listings or significant capital raising. Required structure for certain regulated industries (banking, insurance).
Samlagsfyrirtæki (sf.) · Samlagsfyrirtæki
General partnership
ISK 0
Min. capital
1–3 business days.
Setup time
Liability: Unlimited personal liability for all partners — jointly and severally liable.
Setup cost: Free to register at Fyrirtækjaskrá.
Best for: Two or more individuals wanting to operate together without a company structure. Requires a written partnership agreement. All partners personally liable.
Sameignarfélag (ses.) · Sameignarfélag
Cooperative / Joint venture
No statutory minimum for most cooperative structures
Min. capital
2–4 weeks
Setup time
Liability: Depends on the cooperative structure; typically limited for member capital contributions
Setup cost: Free to low-cost registration at Fyrirtækjaskrá; ISK 15,000–50,000+ for legal and accountancy support
Best for: Cooperatives and jointly-owned ventures, particularly in fishing, agriculture, and community enterprises. Iceland has a strong cooperative tradition in fishing.
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