How much does it cost to have a company in Iceland

Iceland is a modern country with considerably big earnings and strong legal system but at the same time really expensive, therefore is it worth to set up a company in Iceland?

Iceland is the 20th Economy out of 189 in terms of Ease of Doing Business. The score is based on time and cost to meet government requirements with starting a business, operating, trading across borders and paying taxes. Which should mean that it’s a business-friendly country with uncomplicated procedures.

Let’s analyse that.

The best legal form of a company

In terms of taxes the most favourable solution is to open a private limited liability company. More beneficial than having a sole proprietorship or even to be an employee. Also in terms of rights and responsibilities it’s way better.

Below I’ve juxtaposed data and taxes of these three most popular kinds of earning liabilities:

1. Private Limited company (ehf on Iceland - einkahlutafélag):
   1. Set up cost is 130.800 ISK ($1.300 and €1.050) with VAT number;
   2. The minimum share capital is 500.000 ISK ($5.000 and €4.000);
   3. Set up time is approx. one week;
   4. Running costs:
      • radio tax 16.400 ISK ($164 and €130) paid once per year;
      • VAT 24% on revenue in Iceland;
      • Income tax 20%
   5. Board – two board members or one member and one alternate board member:
      • You – the owner;
      • Reserve Director – a person that can close down the company if something happens to you. Doesn’t need to get salary;
   6. Address, can be also a post box;
   7. Responsibilities:
      • Limited responsibilities personally to creditors;
      • but full responsibilities to VAT.

2. Sole proprietorship:
   1. Set up cost is:
      • 66.500 ISK ($665 and €530) for registration with a District Commissioner;
      • 1.000 ISK ($10 and €8) for notification of the registration in the "Legal Gazette";
   2. Set up time is approx. two days;
   3. Running costs:
      • radio tax 16.400 ISK ($164 and €130) paid once per year;
      • VAT 24% on revenue in Iceland;
      • Income tax 36,94% - 46,24% (depending on incomes);
   4. Company created on personal ID number (kennitala) and address;
   5. Full, personal responsibility to all creditors.

In the table below I’ve deliberately omitted taxes that are the same for each of presented instances (like radio tax, municipality tax or pension tax). My intention was to contrast the discrepancies between percentages for various taxes.

As presented above the initial cost of establishing the ehf company is the highest but monthly financial commitments are much lower. Besides the start-up expenses like registration (ISK 130,800 if done by yourself), accountant, lawyer and domain can be deducted from the initial ISK 500,000 shares that need to be put into the company at the beginning. Same with furniture, computers, appliances, etc.

Costs

To rent a small 20m2 office in Reykjavik we need to be prepared for the amount around 180.000 ISK ($1.750 and €1.430) per month! Of course prices drop down if we go further from the centre or if we choose smaller town.

Usually the salary for tax clerk is calculated on hourly basis and is around 15.000 ISK ($150 and €120) per hour, in terms of lawyer it’s 30.000 ISK ($300 and €240). Both plus VAT (24% on Iceland). While I was doing the research I got acquainted with few reliable accountants and lawyers so if you’d like I can ask them for assistance and fairer prices.

Basic rules

Anyone from an OECD country (which includes all EU member states) can establish a company in Iceland and sit on the board. Those from non-member countries need to apply for permission from the Minister of Economic Affairs or the relevant authority.

There's no need to have a brick-and-mortal shop or office, all we need is an address to register our company and that we can get from our accountant or lawyer - they usually register it within their facilities. Accountants and lawyers also help out with other procedures of setting up a company on Iceland, as well as with running the books (all tax and financial issues - annual report, salary, VAT reports). 

What's particularly interesting is the rule that to set up our company we need to "pass the test" before authorities! What they check is our age, our business history, previous endeavours and also probability of our business success. Based on our answers they calculate what chances do we have to thrive with our business idea and if we are below certain level they won't let us open it!

More interesting facts in this interview:

Conclusion

As of drawbacks I should list quite high taxes, all documents and laws in Icelandic, expensive labour (accountants and lawyers) to name the few. Nevertheless, taking into consideration the fact of stable economy and young insatiable market it seems quite easy to bear the costs and discomforts.