Business Setup in Reykjavík (2026)

Good to know

Good to Know

You do not need an Icelandic partner or sponsor to incorporate — 100% foreign ownership of a private limited company (ehf.) is standard, except in a few restricted sectors like fisheries.
The real bottleneck for foreign founders usually isn't the company registry filing itself (which can be as fast as 3-5 working days electronically) — it's getting an Icelandic ID number and clearing bank Know-Your-Customer checks to open the corporate account needed to deposit share capital.
Official government forms and the registry portal are largely in Icelandic; most foreign founders work through a local accountant, lawyer, or bank to handle the paperwork and translations.
Budget for the ISK 500,000 minimum share capital plus the government registration fee as separate cash requirements — the capital must be paid into an Icelandic bank account before the company can be registered.
If your board/management team is entirely outside the EEA/OECD and non-resident, you'll need a specific exemption from the Minister of Industry and Commerce before registration can proceed — plan for this in advance rather than discovering it mid-application.
For most foreign freelancers just starting out, the sole proprietorship (einstaklingsfyrirtæki) is far cheaper and faster to set up than an ehf, but it comes with zero liability protection and taxes your business income at personal income tax rates rather than the lower flat corporate rate.
The ehf (private limited company) is the structure Icelandic banks, landlords and B2B clients generally expect to deal with — if you plan to invoice larger local companies or open a proper business bank account, the extra setup cost and paperwork of an ehf often pays for itself.
Don't ignore the VAT registration threshold of ISK 2,000,000 in any 12-month period — once you cross it you must register and start filing bimonthly returns, and missing deadlines triggers escalating daily fines even if the business made no money that period.
As a non-resident setting up an ehf, factor in that electronic registration requires an Icelandic electronic ID, which most newcomers don't have yet — budget time and possibly a local accountant/lawyer to act as your registered representative for the first filings.

Corporate Income Tax

Rate For Limited Companies: 20% for einkahlutafélag (ehf, private limited) and hlutafélag (hf, public limited) companies, reduced from 21% for the 2026 tax year
Rate For Partnerships Other Entities: 37.6% for partnerships, cooperatives and other legal entities not organized as limited companies
Tax Base: Resident companies (incorporated, registered, domiciled or effectively managed in Iceland) are taxed on worldwide net income after deductible operating expenses; non-resident companies are taxed only on Iceland-sourced income
Loss Carryforward: Tax losses may be carried forward and offset against taxable income for the following 10 years; no carry-back is allowed

Filing And Payment Obligations

Authority: Filed with Skatturinn (the Directorate of Internal Revenue / Iceland Revenue and Customs)
Advance Payments: Monthly advance corporate tax prepayments are due on the first day of each month except January and October, each equal to 8.5% of the prior year's assessed tax; any remaining balance is settled in two payments in November and December after the annual assessment is issued
Annual Return Deadline: 31 May each year, covering the prior calendar-year tax period

Withholding Tax On Outbound Payments

Interest Percent: 13
Dividends Percent: 21
Royalties Percent: 22
Note: Rates may be reduced under an applicable double-tax treaty

Structure Comparison For Foreigners

Public Limited Company Hf

Capital Requirement: ISK 4,000,000
Note: Requires much higher minimum capital and stricter governance; rarely used by foreign individual founders

Branch Of A Foreign Company

Requirements: Registration filed with the Directorate of Internal Revenue; must submit company documents, pay a registration fee, and appoint a local representative
Who It Suits: Existing foreign companies wanting a local presence without creating a new separate Icelandic legal entity, e.g. to test the market or manage local operations
Tax Treatment: Icelandic-sourced branch income is taxed under the same corporate rules as a resident company
Processing Time: Roughly 10–12 business days

Private Limited Company Ehf

Liability: Limited liability — personal assets are protected if the business fails
Eligibility: Non-residents can fully own and manage an ehf; there is no residency requirement for directors, though non-resident owners/directors typically need a system ID number (kennitala) via a specific RSK form, and electronic registration requires an Icelandic electronic ID which non-residents often lack — a local representative is commonly used for filings and correspondence
Who It Suits: The default recommendation for most non-resident founders — banks, clients and partners generally expect this structure, and it cleanly separates personal and business finances
Tax Treatment: Pays the 20% corporate income tax rate on net income; files bimonthly VAT returns at 24%/11%; must make employer pension contributions of at least 11.5% of gross salary for anyone paid through the company, including a self-employed owner-director paying themselves
Processing Time: Roughly 3–5 working days for electronic ehf applications
Capital Requirement: ISK 500,000
Minimum share capital, must be fully paid in before registration is accepted; a state-authorised auditor or independent professional must confirm the capital was paid, and non-cash contributions require valuation by a lawyer or certified accountant

Sole Proprietorship Einstaklingsfyrirtaeki

Liability: No liability protection — the individual is personally responsible for all business debts
Eligibility: EEA/EFTA citizens generally can register directly; non-EEA/EFTA nationals typically need an underlying residence permit first, and all applicants must obtain a kennitala
Obligations: Must register a business name with the Companies Register if trading under a name other than the owner's own; must register for VAT if turnover exceeds the ISK 2,000,000 threshold; also responsible for own social security/pension contributions
Who It Suits: Simplest option for an individual freelancer/consultant; runs under the founder's own personal kennitala (Icelandic ID number) rather than a separate legal entity
Tax Treatment: No corporate tax; business income is taxed as the owner's personal income under the standard progressive personal income tax brackets, not the 20% corporate rate
Registration Cost: ISK 73,500
Registration fee through RSK as of March 2026; processing typically takes 1–14 business days
Capital Requirement: No minimum share capital required

Incorporation Process And Requirements

Overview: Foreigners can incorporate and own an Icelandic company without needing a local partner or sponsor. The most common vehicle for a foreign-owned nomad/founder business is the private limited company (einkahlutafélag, 'ehf'), roughly equivalent to an LLC.

Key Steps

Reserve/verify the company name via the Directorate of Internal Revenue's (Skatturinn) online company name database.
Draft founding documents: Articles of Association (samþykktir), founding agreement, and board meeting minutes (templates are provided by Skatturinn).
Open an Icelandic corporate bank account and deposit the minimum share capital (ISK 500,000 for an ehf.) — this typically requires an Icelandic ID number and passes through bank Know-Your-Customer/AML checks that can be slower for non-resident owners.
Obtain an Icelandic ID number (kennitala) for each director/founder; non-residents apply for a 'system ID number' (kerfiskennitala) via a local bank, lawyer, or accountant rather than directly.
Submit the notice of establishment (Form RSK 17.21 for an ehf.), the beneficial-owner notification (Form RSK 17.27), Articles of Association, founding agreement, and board minutes to Fyrirtækjaskrá (the Register of Enterprises, run by Skatturinn) — electronically if all parties hold Icelandic electronic ID, or by email/post otherwise.
Receive the company identification number and registration certificate once approved.
Register separately for corporate tax, VAT (mandatory if projected 12-month taxable turnover exceeds ISK 2,000,000), and, if hiring, the PAYE payroll/social-security system.

Typical Cost

Ehf Government Registration Fee: ISK 142,000
Foreign Branch Registration Fee: ISK 256,500
Ehf Minimum Share Capital Required: ISK 500,000
General Partnership Registration Fee: ISK 95,500
Sole Proprietorship Registration Fee: ISK 73,500
Estimated All In Cash Needed Before Revenue Ehf: ISK 1,250,000
Notes: Figures exclude legal/translation fees and annual accounting support, which are commonly quoted separately.

Entity Options

Private Limited Company (Ehf.)
Min Share Capital
ISK 500,000
Min Founders Shareholders
1 (a single person can be sole shareholder and sole director)
Description
Most widely used structure for foreign founders; offers limited liability.
Public Limited Company (Hf.)
Min Founders Shareholders
2 founders, 2 shareholders, 3 board directors, manager mandatory
Description
For larger enterprises seeking public capital; rarely used by individual foreign founders.
Sole Proprietorship (Einstaklingsfyrirtæki)
Min Share Capital
ISK 0
Description
Runs under the founder's personal ID number; simplest and cheapest, but no liability protection — owner is personally liable for all debts.
Branch of a Foreign Company (úTibú)
Min Share Capital
ISK 0
Description
Historically the structure most foreigners have used to operate in Iceland; not a separate legal entity — the foreign parent bears liability for the branch's obligations.

Documents Required

Articles of Association (samþykktir), signed by a majority of the board
Founding agreement and minutes of the founding meeting
Notice of establishment (RSK 17.21 for ehf.)
Beneficial ownership notification (RSK 17.27)
Bank confirmation/affidavit that share capital has been paid in (from a lawyer or certified accountant if capital is non-cash)
Certified passport copy for any founder/director without an Icelandic ID, to obtain a system ID number

Realistic Timeline

Branch Registration: Foreign company branches are generally quoted as taking about 10-12 business days for registry processing, though Skatturinn's own branch-registration page cites roughly 2-3 weeks.
Official Registry Processing: Skatturinn's own guidance states electronic ehf. applications generally process in 3-5 working days once all parties hold Icelandic electronic ID; some third-party sources instead cite roughly 2-4 weeks for full registry processing of paper/email submissions.
Full Realistic Timeline For A Foreign Founder: Most non-resident founders should budget several weeks to a couple of months in total once time to obtain the system ID number (kennitala), pass bank Know-Your-Customer/anti-money-laundering checks for the corporate account, and get documents translated into Icelandic (or an accepted Nordic language/English) is factored in — these steps, not the registry filing itself, are usually the bottleneck for foreigners.

Official Government Links

Local Partner Or Sponsor Mandate

Detail: There is no requirement for a local shareholder or partner — foreigners can own 100% of an ehf. However, board/management residency rules apply: at least half of the board of directors and the managing director generally must reside in Iceland, another EEA state, or an OECD country, unless a specific exemption is granted by the Minister of Industry and Commerce.
Sector Exceptions: Restrictions on full foreign ownership apply in a small number of sectors, notably fisheries and primary fish processing, and energy — a local partner or special approval may be required there.
Local Shareholder Required: No

VAT Value Added Tax

Reduced Rate Percent: 11
Standard Rate Percent: 24
Reduced Rate Applies To: certain goods/services including food, accommodation, books and some tourism-related activities
Filing Frequency: VAT returns are filed bimonthly (six periods per year: Jan/Feb, Mar/Apr, etc.), due one month and five days after each period's end; very small businesses under roughly ISK 4,000,000 in annual revenue may in practice file only once a year
Registration Threshold: ISK 2,000,000
Businesses (including sole proprietors and foreign taxable persons) with taxable turnover of ISK 2,000,000 or less in any rolling 12-month period from start of activity are exempt from VAT registration; foreign businesses supplying digital/electronic services to Icelandic consumers must register from the first taxable supply under a simplified regime regardless of this threshold
Foreign Business Note: A foreign company without a permanent establishment in Iceland that has VAT-taxable activity here generally must appoint a locally domiciled representative/agent to handle VAT collection and remittance

AI-generated estimateData refreshed July 2026

Sources cited for this category

These are the sources cited in this business permits & incorporation for foreigners research for this city. Individual figures may not each trace to one of them.

More About Reykjavík

Data last updated July 2026 · Verify anything important.