The Icelandic Government acknowledges that Foreign Direct Investment is paramount to the continued growth of Iceland´s economy along with numerous possibilities that offer different public and private financing. Below you can find a variety of programs that are suitable for your business setup. Iceland focuses on a favorable environment for businesses in general, including low corporate tax, availability of land and efficiency in a European legislative framework.
Regional Incentives Available
The Regional Incentives, according to Act 41/2015, apply to the whole of Iceland outside the capital area. The incentives include:
- Authorization to fix the rate of income tax down to 15% for 10 years
- In the year when new assets are taken into operation, the company can elect to depreciate those assets with a proportional factor of the annual depreciation instead of full years depreciation
- Real estate, equipment and moveable assets can be depreciated fully, leaving no residual value
- Authorization to reduce the rate of property tax by 50% for 10 years*
- Authorization to reduce the rate of the general social security charge by 50% for 10 years**
- Exemption from customs duties and excise duties on importation or domestic purchase of construction materials, machinery and equipment, and other capital goods, as well as spare parts for the building of the investment project and the operation thereof
- Authorization for the state or the municipalities to sell or lease a site for the investment project, at a price which is regarded as below normal market price***
Application, Limitation and Ceiling
The Ministry of Industries and Innovation accepts applications for regional incentives and makes an offer for an incentives package, in the form of an investment agreement, based on the recommendation of a reviewing committee. Incentives are for specific projects that fulfill the criteria outlined in the legislation. The annual turnover of the investment project shall be at least 300 million ISK / or the investment shall create 20 permanent jobs during the first two years. Examples of other criteria are: The establishment of a specific company in Iceland for the project; that the project shall not have started before the signing of the investment contract; 20% minimum own equity finance of the investment cost of the project; a minimum operational period in Iceland of 10 years and information on whether the investment project is subject to environmental impact assessment (EIA) by law.
The Icelandic legislation on EIA is harmonized with EU guidelines. Annex 1 of Act 26/2006 on EIA stipulates projects that are subject to an EIA. Annex 2 stipulates projects that are subject to an assessment as to whether an EIA is necessary. The National Planning Agency decides on Annex 2 projects in about 6 weeks.*
The incentives for initial investment in Iceland do not apply to investments in companies that provide services on the basis of legislation on financial undertakings, insurance operation or securities, nor to airports or energy production.
The general aid ceiling is 15% of initial investment cost. The ceiling can be lifted to 25% for medium sized enterprises and 35% for small enterprises.** For large investments (exceeding 50 million Euros) the aid ceiling decreases in line with the investment cost, in accordance with EU legislation on regional investment aid.**** The Icelandic legislation on EIA is harmonized with EU guidelines. Annex 1 of Act26/2006 on EIA stipulates projects that are subect to an EIA. Annex 2 stipulates projects that are subject to an assessment as to whether an EIA is necessary. The National Planning Agency decides on Annex 2 projects in 6 weeks after receiving the necessary scoping documents. ** Guidelines from EFTA Surveillance Authority (ESA) on aid to micro-, small- and medium-sized enterprises define a mall enterprise as an enterprise which employs fewer than 50 persons and whose annual turnover does not exceed EUR 2 million and/or annual balance sheet total does not exceed EUR 10 million. A Medium-sized enterprise is an enterprise which employs 50–250 persons and which has an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million. *** The Minister does, by means of a Government regulation, provide further basis forthe calculation of the permitted proportion of State aid pursuant to this Article in compliance with the EFTA Surveillance Authority Regional State aid Guidelines on regional aids for the years 2014–2020.
Tax incentives for foreign experts
Foreign experts, hired to work in Iceland, do enjoy personal tax incentives. A special tax deduction allows that only 75% of the income is considered taxable for the first three years of employment, if the foreign expert is hired with a legal person, which has domicile or a fixed place of business in Iceland and that legal person is the actual salary-payer; the foreign expert has not been domiciled in Iceland the previous 5 years before his recruitment; and the foreign expert has knowledge that is limited in Iceland.
Incentives for R&D
Iceland offers incentives for research and development in the form of tax credits for innovation companies as outlined in Act No 152/2009, approved by the EFTA Surveillance Authority. The aid is granted as a reimbursement of the companies´ paid income tax. The tax credit is 20% of the actual R&D cost with an annual ceiling of a total actual cost of ISK 300 million for internal R&D or ISK 450 million for R&D cooperation between two independent innovation companies. Under the scheme companies that carry out research and development projects can apply for a tax credit to the Icelandic Centre for Research (Rannís).
In 2019, the Icelandic government will remove the annual tax credit ceiling. A 20% R&D cost generated in the year 2019 will thus be reimbursed without limitations.
General incentives allowed under European legislation
Commission Regulation (EC) No 651/2014, on General Block Exemptions, declares certain categories of state aid compatible with the common EEA market, which Iceland is part of. These include:
- Incentives as Training aid of up to a maximum of 2 million Euros
- Incentives as aid to SMEs investment, up to 10% of investment cost in Medium Sized Enterprises or 20% of investment cost in Small Enterprises , with a ceiling of 7.5 million Euros
- Incentives as aid to environmental protection investment projects up to a maximum of 15 million Euros.
The Regulation falls under the Agreement on the European Economic Area and will be implemented accordingly into Icelandic legislation. This work is underway.
Support for investments and grants
Icelandic authorities and industry organisation are keen to encourage innovation and investment in research and development.
The Enterprise Investment Fund
The Enterprise Investment Fund is a public/private initiative that was established in 2009 by 16 pension funds, Landsbanki and VIS insurance. It´s main goal is to invest in established companies that are experiencing financial difficulties but do not exclude any investment opportunity that is desirable.
Direct R&D grants
The Technical Development fund operated by RANNÍS (The Icelandic Center for Research) offers a R&D grant to companies that are working on innovative projects. The maximum amount that will granted towards each company is 45 million ISK divided over a 3 year term. Companies applying for this grant must offer a 50% matching contribution towards the amount applied for. Application guidelines can be found in following link.
Direct Startup Grants for SME´s
The Innovation Center in Iceland offers startups and SME´s assistance and guidance with various different issue that arise when starting a company, this includes information on different grants available from the Innovation Center as well as other public and private grants. Do gain more information about these grants you can click on the link below.
Landsbanki Íslands offers innovation grant for companies in the the amount of 10 million ISK per year (80.000 USD). Companies can apply for grants for advanced projects in the amount of 500.000 – 2.000.000.- ISK. Startup projects can apply for grants from 200.000 – 500.000 ISK
Film and TV production
Producers of films and TV material can apply for a 25% reimbursement of all cost associated with producing a film or TV program in Iceland, fulfilling certain criteria.