Northern Europe


354, 234 (July 2021 est.)


Iceland is an island nation located in Northern Europe between the Greenland Sea and the Northern Atlantic Ocean. The government system is a constitutional republic; the chief of state is the president, and the head of government is the prime minister. Iceland has a Scandinavian-type social-market economy that combines a capitalist structure and free-market principles with an extensive welfare system. Iceland is a member of the European Free Trade Association (EFTA).

The main business vehicles that are used in Iceland are two types of limited liability companies, public and private. They are regulated by Act No. 2/1995 on Public Limited Companies and Act No. 138/1994 on Private Limited Companies.

The establishment of branches of foreign companies and partnerships are also common in Iceland, in addition to sole proprietorships (confined to self-employed individuals).

The most common form of business vehicle used by foreign companies in Iceland is a subsidiary in the form of a private limited liability company. Tax implications play a large role in choosing the type of business entity to use because the income tax rate for limited companies and their branches is now 20%, in comparison to 37.6% for partnerships. In addition, limited companies offer the benefit of limited liability, while partnerships entail full and unlimited liability for all partners.


162 megabit per second download rates


Iceland uses Northern European electrical standards (50 Hz/220 volts) so converters may be required for small electrical appliances.


$55,874 (2019 est.)
$56, 158 (2018 est.)
$55, 562 (2017 est.)

note: data are in 2010 dollars


temperate; moderated by North Atlantic Current; mild, windy winters; damp, cool summers


Foreign Direct Investment


  • Minimum investment of EUR 200,000 (no limit)

Qualifying Investments

Iceland has friendly business laws open to investments in key sectors such as:

  • Data centers (IT)
  • Chemicals
  • Life sciences
  • Green energy
  • Fishing
  • Real estate
  • Tourism
  • Manufacturing

Key Benefits

  • Permanent residency after 4 years of legal residence
  • Iceland Citizenship after 5 years of legally living

Processing time

  • 1 month


fish, hydropower, geothermal power, diatomite


Icelandic 81.7%, Polish 5.6%, Danish 1%, other 11.7% (2020 est.)

note: data represent population by country of birth


Icelandic, English, Nordic languages, German


Evangelical Lutheran Church of Iceland (official) 62.3%, Roman Catholic 4%, Reykjavik Free Church 2.7%, Hafnarfjordur Free Church 2%, pagan worship 1.4%, Icelandic Ethical Humanist 1.1%, other religions 4% (includes Zuist and Pentecostal), none 7.6%, other or unspecified 15% (2020 est.)


total: 37.1 years
male: 36.6 years
female: 37.7 years (2020 est.)


urban population: 93.9 % of total population (2021)
rate of urbanization: 0.74% annual rate of change (2020-25 est.)
Total population growth rate v. urban population growth rate, 2000-2030


4.08 physicians/1,000 population (2018)


unitary parliamentary republic


3.62 % (2019 est.)
2.73 % (2018 est.)


Personal Income Tax Rate (highest marginal tax rate) – Personal Income Tax Rate in Iceland averaged 44.69 percent from 1995 until 2021, reaching an all-time high of 46.90 percent in 1996 and a record low of 35.70 percent in 2007.

Tax resident individuals must pay income tax on their gross income. Income tax is divided into state income tax and municipal income tax, which are withheld and paid monthly at the following progressive rates:

  • Income up to ISK336,916: 35.04%.
  • Income from ISK336,917 to ISK945,873: 37.19%.
  • Income over ISK945,873: 46.24%.
  • All individual taxpayers of 16 years of age and above are entitled to a personal tax credit, deducted monthly by the employer against the calculated state and municipal income taxes. The current personal tax credit is ISK54,628 per month.

Each year, all tax resident employees must file an annual income tax return to the Directorate of Internal Revenue. The tax year is the same as the calendar year.

Non-tax resident individuals who derive income from employment during their stay in Iceland are subject to income tax on such income at the same rates as resident employees. Non-tax resident individuals are entitled to a personal tax credit in direct proportion to the days they spent in Iceland.

Corporate Income Tax Rate (excluding dividend taxes)

Corporate income tax (CIT) for limited liability companies (LLCs) and limited partnership companies is assessed at a rate of 20%. CIT for other types of legal entities (e.g., partnerships) is assessed at a rate of 37.6%

Tax resident businesses are taxed on their worldwide income

Taxable income and deductible costs is defined by tax law. In practice, taxable profits are determined based on the financial accounts of companies, after any adjustments required by tax law. All taxes are paid in the assessment year (the year following the year of operations).

Each business entity is taxed separately. However, a parent company with a subsidiary can apply for tax consolidation if one company owns at least 90% of shares in another company.

Corporate income tax

The rate of income tax for limited liability companies is 20%. The rate for partnerships (in Iceland they are legal persons and taxable as such) registered for tax purposes is 37.6%.

Tax resident business

Companies are considered tax resident in Iceland if they are either incorporated in Iceland, have their statutory seat in Iceland or their place of effective management in Iceland. Tax resident companies are generally subject to tax in Iceland on their worldwide income.

Non-tax resident business

Business vehicles can also be subject to tax in Iceland due to physical presence in the form of a permanent establishment. Non-tax resident companies are generally subject to tax on the income attributable to a permanent establishment in Iceland (if any).

The definition of a permanent establishment is similar to the OECD (Organization for Economic Co-operation and Development) model tax convention, as amended by BEPS (base erosion and profit shifting) Action 6. The attributed income is taxed at the same general rates that apply to resident companies. Double taxation treaties could apply.

Permanent establishments are taxed in conformity with the rules applicable to tax resident companies with regard to dividends, royalties, income derived from business activities, capital gains from the disposal of Icelandic assets (including real estate) or shares and bonds.

Special Tax Regimes

Every taxpayer of 16 years and older is entitled to personal tax credits of ISK 609,509 for the year 2021 (ISK 50,792 per month). Should a person move to or from Iceland, one will receive personal tax credits for the period they resided in Iceland. The period is calculated in days. Unused personal tax credits are transferable in full between married couples and cohabitants within the calendar year.

Iceland has tax treaties with around 44 states already in force, including one that is a multilateral treaty between the Nordic countries, to which Iceland, Sweden, Norway, Finland, Denmark and the Faroe Islands are parties. The Ministry of Finance and Economic Affairs aims to build a more extensive treaty network and is therefore negotiating with new treaty partners.

Table of Contents: ICELAND

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