Iceland – Self-Employment

How does self-employment work for expats in Iceland?

Under Icelandic tax law, self-employment is understood as an activity carried out independently on a commercial basis, where the individual bears the associated financial risk. This definition distinguishes self-employed income from wages or salary, and it governs how earnings are assessed and which social contributions become due. The Icelandic term for a sole trader is einstaklingsfyrirtæki, while someone operating through their own incorporated company is treated under a different set of rules entirely.

Nationals of EEA/EFTA countries can typically register as self-employed without requiring any special authorisation, whereas citizens from outside the EEA may need to obtain a residence or work permit before they can formally register as a sole proprietor. This mirrors how freedom-of-movement principles operate across European countries such as Germany or the Netherlands — EEA nationals hold a recognised right to self-employment, while others must navigate additional requirements.

If you hold citizenship in a country outside the European Economic Area (EEA), the European Free Trade Association (EFTA), or the Faroe Islands, you must first obtain both a residence permit and a work permit before engaging in any work in Iceland. Some foreign nationals opt to incorporate a company in Iceland, but holding shares in a company alone does not automatically confer the right to live or work there. If you intend to manage your company from within Iceland, you will generally need to secure a residence permit tied to your role in the business, demonstrate that your physical presence is genuinely necessary for its operation, and show that the enterprise creates economic value in Iceland.

To register as a sole proprietor, you must possess an Icelandic identification number (kennitala). All individuals residing in Iceland for more than six months are required to register with the National Registry (Þjóðskrá), which issues the kennitala upon registration. If your planned stay is shorter than six months, it may still be possible to obtain a temporary kennitala for tax or commercial purposes. Always check current registration requirements through Ísland.is, Iceland’s official government services portal.

What are the different self-employment and business structures available in Iceland?

Establishing a business in Iceland is relatively straightforward, though it is important to select a legal form that fits the nature and scale of your intended activities. The principal structures available include sole proprietorships, private and public limited companies, co-operative societies, and various partnership arrangements. Each option carries distinct implications for personal liability, taxation, and administrative burden.

Sole Proprietorship (Einstaklingsfyrirtæki): A sole proprietorship is owned and run by a single person. No minimum capital is required to establish one, but the owner bears full and unlimited personal liability for every debt and obligation incurred by the business. This is broadly comparable to a sole trader structure in countries such as Ireland or New Zealand — it is fast and inexpensive to establish, but there is no legal separation between your personal assets and those of the business. Sole proprietors are subject to Iceland’s progressive personal income tax; in 2025, combined state and municipal rates fall between 31.49% and 46.29% depending on earnings, and all business income is declared as personal income via an annual return filed with Skatturinn.

Private Limited Company (Einkahlutafélag / ehf.): The private limited company, known by its abbreviation ehf., is the most widely used and practical structure for foreign nationals. It suits small to medium-sized enterprises and provides shareholders with limited liability protection. A minimum share capital of ISK 500,000, fully paid at the point of incorporation, is required. There is no residency requirement for shareholders or directors, although a local representative may be necessary for specific filings. This structure is broadly equivalent to a UK private limited company or a German GmbH.

Public Limited Company (Hlutafélag / hf.): The public limited company (hf.) is intended for larger enterprises, requiring a minimum capital investment of ISK 4,000,000 and carrying the right to offer shares publicly. Due to its considerably higher capital requirements and administrative complexity, this structure is less commonly chosen by foreign entrepreneurs.

General Partnership (Sameignarfélag): A general partnership can be formed by two or more individuals who share in both the management and the profits of the enterprise. As with a sole proprietorship, all partners carry unlimited personal liability for the business’s obligations, making this structure most appropriate where all parties have an established relationship and a clear understanding of the risks involved.

Branch of a Foreign Company: Foreign companies may open a branch in Iceland without creating a separate legal entity. This has historically been a preferred route for extending existing operations into the Icelandic market without going through a full incorporation process. While administratively simpler in some respects, a branch does not offer the same degree of liability protection as a fully independent legal entity.

How do you register as self-employed in Iceland?

Registering as a sole trader in Iceland involves several government bodies — chiefly the National Registry (Þjóðskrá), the Directorate of Internal Revenue (Skatturinn), and the Firm Registry — and is considerably less burdensome than equivalent processes in more bureaucratic jurisdictions. The following is a step-by-step overview. Always verify current requirements and fees directly with Skatturinn.

1. Confirm your right to work in Iceland. EEA/EFTA nationals can generally proceed without a special permit. Non-EEA citizens may need to obtain a residence or work permit before registering as a sole proprietor. Confirm your entitlement with the Directorate of Immigration before taking any further steps.
2. Obtain your kennitala (Icelandic ID number). EEA/EFTA nationals who remain in Iceland for longer than three months must register with Registers Iceland (Þjóðskrá). This registration establishes your legal domicile and provides you with a kennitala. If your stay will be shorter than six months, a temporary kennitala may still be available for tax or business purposes.
3. Choose and reserve a business name (if applicable). By default, you will trade under your full legal name. If you wish to use a distinct trading or business name, it must be registered with the Firm Registry. The name must not conflict with any already on the register, and you can search existing names using the government’s online search tool.
4. Register with Skatturinn (Directorate of Internal Revenue). All self-employed individuals in Iceland must register with the tax authority and pay income tax on their earnings. Registration can be completed through Skatturinn’s online portal or by submitting the relevant paperwork in person. On completion, you will receive a tax registration number confirming your self-employed status.
5. Register for VAT if required. If your annual turnover exceeds ISK 2,000,000 within any twelve-month period, VAT registration is compulsory. You must complete Form RSK 5.02 (as of 2025) and submit it to the Directorate of Internal Revenue. Both domestic and foreign businesses selling taxable goods or services in Iceland are subject to this requirement, and upon successful registration you will receive a VAT number and certificate. VAT rates are 24% (standard) and 11% (reduced).
6. Register social security and pension contributions. Sole proprietors contribute to Iceland’s social security and pension system via the “calculated remuneration” (útreiknuð laun) method. Contributions encompass pension fund payments and mandatory insurance premiums, which are typically remitted monthly alongside withholding taxes.
7. Open a business bank account. Holding a separate bank account for business activity is not strictly required by law, but it is strongly advisable to maintain clear accounting records and keep personal and business finances distinct. Be aware that banks may ask for proof of registration and a valid kennitala before opening an account for a foreign national.

VAT and employer withholding registrations typically take around 2–3 working days to process once forms have been submitted (as of 2025). The overall registration process moves quickly once you hold a valid kennitala. Consult Ísland.is for the latest official guidance and any updates to registration fees.

How do you set up a company in Iceland as an expat?

For foreign entrepreneurs wishing to create a formal business entity, incorporating a private limited company (ehf.) is the most common and practical route. While the process is relatively accessible, it is important to select a legal structure suited to your business activities. The steps below outline the standard incorporation process for an ehf. Always verify current requirements with Fyrirtækjaskrá (the Company Registry) and Skatturinn.

1. Confirm ownership eligibility. Full foreign ownership is permitted across all sectors for OECD and EEA residents, with the exception of fishing, fish processing, energy production, and aviation, which remain closed to outside investors. Confirm that your planned activity does not fall within any restricted category before proceeding.
2. Obtain a kennitala. Anyone establishing a business in Iceland must have a ten-digit identification number, which serves as the gateway to engaging with Icelandic institutions. Non-residents may apply for a system ID number (kennitala) via Form RSK 17.62.
3. Choose and reserve your company name. All private limited company names must end with “einkahlutafélag” or its abbreviation “ehf.”, and must not be identical to or confusingly similar to an existing registered name. The chosen name must also conform to Icelandic linguistic conventions. Search the company register to verify availability before submitting your application.
4. Prepare the articles of association (samþykktir). The company’s articles of association must be drafted to cover its purpose, share structure, management arrangements, and other governance provisions. Engaging an Icelandic lawyer or business formation specialist at this stage is strongly advisable to ensure full legal compliance.
5. Deposit the minimum share capital. An ehf. requires a minimum share capital of ISK 500,000, which must be fully paid at the point of incorporation (as of 2025). Capital may be contributed in kind — such as equipment or other assets — rather than exclusively in cash. You will need written bank confirmation of the deposit to accompany your registration application.
6. Submit the registration application to Fyrirtækjaskrá. The completed application, together with the articles of association, share capital confirmation, and details of directors, is submitted to the Icelandic Company Registry (Fyrirtækjaskrá). The registration fee for a private limited company (ehf.) is ISK 131,000 (as of 2025). Confirm the current fee with Fyrirtækjaskrá before filing, as charges are subject to change.
7. Register with Skatturinn for tax and VAT purposes. All newly established businesses must notify the tax authority. Register your company with Skatturinn and, if your anticipated taxable turnover will exceed ISK 2,000,000 per year, complete Form RSK 5.02 to obtain a VAT registration number.
8. Appoint a local representative if required. While no residency requirement exists for shareholders or directors, certain filings may necessitate a local representative. A non-resident entrepreneur without a registered office or other fixed place of business in Iceland is generally required to appoint a representative who is legally responsible for acting on the company’s behalf in matters of VAT and other regulatory obligations.

Where a work-based residence permit is required in parallel with company formation, processing typically takes between two and four months from the date a complete application is submitted (as of 2025). Company registration itself, once all documentation is in order, is generally finalised within a few working days. For legal assistance, the Icelandic Bar Association (lmfi.is) maintains a directory of lawyers experienced in advising foreign businesses establishing themselves in Iceland.

Can you work as a digital nomad in Iceland?

Iceland has established a formal pathway for location-independent workers, placing it among a growing cohort of countries — including Estonia, Portugal, and Barbados — that have created dedicated arrangements for remote professionals. Formally designated as the Long-Term Visa for Remote Workers, this scheme enables eligible non-EEA nationals to reside in Iceland while continuing to work remotely for an employer or client based outside the country.

Launched in 2020, the visa was introduced in response to the expanding community of professionals whose work is entirely location-independent. Unlike conventional work permits, it is tailored specifically to remote employees, freelancers, and self-employed individuals who generate income from abroad and rely on digital tools to carry out their work. It provides a legal basis for extending one’s stay beyond the standard Schengen tourist limit, though it is temporary in nature and does not constitute a pathway to permanent residence.

Who is eligible? The visa targets non-EEA/EFTA nationals who work remotely and can demonstrate a consistent income originating from outside Iceland. It is open to remote employees of foreign companies, freelancers and self-employed professionals whose client base is abroad, and digital nomads who have no intention of seeking employment within Iceland. Applicants must satisfy specific income requirements and confirm that they do not plan to settle permanently or enter the local labour market.

Income requirements (as of 2025): The minimum monthly income required is ISK 1,000,000 for a single applicant (approximately $7,000–$7,800 USD) and ISK 1,300,000 per month for an applicant accompanied by a spouse or partner (approximately $9,000–$10,100 USD). These thresholds are notably high, reflecting Iceland’s elevated cost of living. Always confirm the latest figures with the Directorate of Immigration.

Duration and limitations: The visa permits holders to reside in Iceland for up to 180 days while working remotely, to legally carry out online work for a non-Icelandic employer or business, and to travel freely within the Schengen Area throughout the visa’s validity period. It does not, however, permit work for Icelandic companies, the provision of services to local clients, or registration as a resident with access to public services such as an Icelandic ID number.

EEA/EFTA nationals: Citizens of EEA or EFTA member states generally have no need for the digital nomad visa — they are entitled to register and operate without any special permit, and can remain in Iceland long-term by registering with Þjóðskrá. This substantially simplifies matters for many expats who are already residents within the European single market.

Applications for the Long-Term Visa for Remote Workers are submitted in paper format, either by post to the Directorate of Immigration in Iceland or through an Icelandic diplomatic mission abroad. Processing generally takes several weeks, though timelines may vary depending on application volumes and whether supplementary documents are requested.

What taxes and social contributions apply to self-employed expats and business owners in Iceland?

Iceland operates a thorough tax framework covering both sole traders and incorporated businesses. A clear understanding of the distinction between personal income tax — which applies to sole proprietors — and corporate income tax — which applies to companies — is fundamental to selecting the most appropriate business structure for your circumstances.

Personal income tax for sole traders: Sole proprietors are subject to Iceland’s progressive personal income tax system. In 2025, the combined state and municipal rates range from 31.49% to 46.29% depending on the level of income earned. Business profits are treated as personal income, and you must submit an annual tax return to Skatturinn. Unlike employees, whose tax is deducted at source through a PAYE-style arrangement, self-employed individuals are responsible for calculating and reporting their own income, though regular advance payments are typically made through the “calculated remuneration” (útreiknuð laun) mechanism.

Corporate income tax: Companies in Iceland are subject to a corporate tax rate of 21% (as of 2025), applied to taxable profits. For higher earners, incorporating an ehf. can be advantageous, since profits retained within the company are taxed at 21% rather than at the higher marginal rates that apply to sole traders. The optimal approach depends on your personal income level and financial goals, so discussing the options with a local tax adviser is worthwhile.

VAT (VSK): Businesses selling taxable goods and services in Iceland must charge and remit VAT at either 24% or 11%, which is added to the price of the relevant goods or services. Businesses whose taxable turnover does not exceed ISK 2,000,000 in any twelve-month period are exempt from the obligation to register for VAT (as of 2025). The standard rate is 24%, while the reduced rate of 11% applies to items such as hotel accommodation, campground facilities, food, books, and heating services.

Pension and social security contributions: Sole proprietors pay into Iceland’s social security and pension systems through the calculated remuneration method. Required contributions cover pension fund payments and mandatory insurance premiums. Both employees and employers must contribute to pension funds, with the combined minimum standing at 15.5% of gross salary, of which the employee’s share is typically 4%. For self-employed individuals, the entire contribution is your own responsibility — an important distinction from employment, where the employer funds a significant portion.

Tax treaties: Iceland has concluded double taxation agreements with a broad range of countries. If you continue to receive income from abroad or remain a tax resident in another jurisdiction, these treaties are essential for preventing the same income from being taxed twice. The current list of applicable treaties can be found via Skatturinn. Always verify current rates and thresholds directly with Skatturinn, as these may be revised on an annual basis.

Are there any incentives, grants, or programmes to encourage expat entrepreneurs in Iceland?

Iceland does not have a dedicated startup visa programme of the kind seen in countries such as Chile or the Netherlands, but it does offer meaningful tax incentives and support mechanisms for innovation-driven businesses — and these are available to expat entrepreneurs on the same terms as Icelandic residents.

Innovation and R&D tax incentives: A range of tax incentives exist to encourage investment in innovation in Iceland. Private individuals who invest in qualifying innovation companies can deduct up to ISK 300,000 per year (or ISK 600,000 for couples) from their taxable income. Corporate investors may deduct up to ISK 15,000,000 annually from taxable income for the same purpose. Qualifying innovation companies themselves can deduct 15% of their annual research and development expenditure from their income tax liability; where this deduction exceeds the amount of tax owed, the balance is reimbursed. These figures apply as of 2025 — verify the current thresholds with Skatturinn.

Film production incentives: Icelandic tax legislation provides for specific incentives related to film production carried out in Iceland. Entrepreneurs in the creative industries will find that Iceland actively seeks to attract international film and media productions, with dedicated support available through relevant government and industry bodies.

Sector-specific grants: While there are no general first-year tax relief schemes applicable to all new businesses, grants or innovation incentives tied to specific industries may be available depending on your sector. Organisations such as Rannís (the Icelandic Centre for Research) administer funding for research and innovation projects, including grants that may be accessible to businesses incorporated in Iceland regardless of the founder’s nationality.

Invest in Iceland: The official trade and investment promotion agency, Invest in Iceland, provides guidance for foreign investors and entrepreneurs exploring the possibility of establishing operations in Iceland. It serves as a practical first point of contact for understanding the business environment, available support structures, and key sector opportunities — particularly in renewable energy, technology, and tourism.

Startup ecosystem support: Reykjavík hosts a developing startup community, with incubators and accelerators such as Startup Reykjavík offering mentorship, networking, and access to expertise. Although these programmes are not designed exclusively for foreign founders, they are open to expat entrepreneurs and can provide valuable local connections and hands-on business development support.

What are the practical challenges of being self-employed or running a business in Iceland?

Iceland offers a high-quality, high-cost operating environment. Most expats find it safe, well-organised, and digitally sophisticated, but there are genuine practical challenges worth understanding before you launch a venture.

Language: Icelandic is the official language of government and public administration. Although the majority of Icelanders speak fluent English and portals such as Ísland.is provide English content, many tax forms, regulatory communications, pension fund notices, and official documents are issued exclusively in Icelandic. The Ministry of Finance, for instance, publishes its annual guidelines on reference earnings for self-employed individuals only in Icelandic. Retaining a local accountant or business adviser who is fully bilingual is strongly recommended, particularly for annual tax filings.

Accounting and professional support: Most sole traders in Iceland are not legally required to engage a licensed accountant, but the complexity of the útreiknuð laun (calculated remuneration) system, VAT return obligations, and annual tax declarations makes professional assistance practically indispensable for the majority of expats. A qualified Icelandic accountant (endurskoðandi) or tax consultant can file returns on your behalf and ensure ongoing compliance with Skatturinn’s requirements. Accountancy fees reflect Iceland’s general cost of living and should be incorporated into your business planning from the outset.

Banking access: While a dedicated business bank account is not a strict legal requirement for sole traders, it is highly advisable for maintaining clear financial records and separating personal from business funds. In practice, opening a business account as a foreign national can involve presenting a kennitala, proof of residence, and in some cases additional documentation such as a lease agreement or a utility bill. It is worth approaching a major Icelandic bank such as Íslandsbanki or Arion Banki early in the process and asking directly about their requirements for recently arrived or non-resident customers.

Invoicing standards: All invoices must contain your name or registered business name, kennitala, a sequential invoice number, the date, a description of the goods or services provided, and applicable VAT where relevant. Invoices must be issued in order and retained for your records. If you bill foreign clients, invoices may be denominated in a foreign currency, but Icelandic VAT rules and record-keeping obligations still apply. Seek advice from Skatturinn or your accountant regarding the correct handling of cross-border invoicing.

Cost of living and operating costs: Iceland regularly features among the most expensive countries in the world to live and do business in. Rent, utilities, food, and services are significantly costlier than in the vast majority of other European countries. When setting your freelance rates or constructing a business budget, you must account for these elevated costs — this is particularly important for sole traders, whose personal living expenses must be funded from the same income that covers business outgoings.

Non-resident business owners: Although it is possible for non-residents to incorporate a company in Iceland, holding shares alone does not confer any right to live or work there. If you plan to manage the business from abroad, you may need to appoint a local representative for certain regulatory and filing purposes. For VAT purposes, a foreign company selling taxable services in Iceland without a permanent establishment there must designate a locally domiciled agent to act as its representative.

Frequently asked questions

Can I be both employed and self-employed at the same time in Iceland?

Yes, this is entirely permitted in Iceland. Many individuals combine a salaried position with freelance or sole trader work. Each income stream must be reported separately to Skatturinn — employment income is generally taxed at source, while self-employment income must be declared through your annual tax return and the monthly calculated remuneration system. Ensure that your employment contract does not include clauses prohibiting outside work, and inform your accountant so that both income streams are handled correctly from the outset.

Can I invoice foreign clients from Iceland as a sole trader or company?

Yes. Every invoice must include your name or registered business name, kennitala, a sequential invoice number, the date, a description of the goods or services, and applicable VAT where relevant. When billing clients based outside Iceland, VAT is generally not applied to exported services — though this depends on the nature of the service — and you should confirm the correct VAT treatment with Skatturinn or a local tax adviser before issuing invoices. Maintaining records that show ISK equivalent values is important for your annual tax return.

What happens to my business if my visa or residence status changes?

Your entitlement to operate a business in Iceland is directly tied to your legal right to reside or work there. If your residence permit lapses, is withdrawn, or you depart Iceland permanently, you are required to notify Skatturinn, cancel your VAT registration if applicable, and submit a final tax return. You must also close your accounts and file final returns with the relevant authorities. Neglecting to formally dissolve your registration can result in continued tax liability, so it is important to act without delay if your circumstances change.

Is there a minimum income requirement for self-employed people in Iceland?

There is no minimum earnings threshold that must be met in order to register as self-employed. However, your income will be measured against reference earnings published annually by the Ministry of Finance, which form the basis for calculating social and pension contributions. These reference figures are released each January. If your actual income falls below the reference amount, this can affect how your contributions are computed. A local tax adviser can help clarify the implications for your specific situation.

Do I need a local director or shareholder to set up a company in Iceland?

No residency requirement applies to shareholders or directors of an ehf. (private limited company), which makes Iceland comparatively accessible for non-resident founders relative to certain other European jurisdictions. That said, a locally based representative may be required for specific filings, and for VAT purposes a non-resident company without a fixed establishment in Iceland must designate a local agent. Engaging a local accountant or corporate services provider can satisfy this function.

Are there restricted sectors where foreign ownership is not permitted?

Full foreign ownership is permitted across all industries for OECD and EEA residents, with the exception of fishing, fish processing, energy production, and aviation — these sectors remain closed to outside investors. If your proposed business falls within any of these categories, you will need to take specific legal advice before proceeding, since ownership and operating restrictions apply irrespective of business structure. The Icelandic Government’s official business establishment page provides further detail on these restrictions.

What is the VAT registration threshold and how does VAT work for self-employed expats?

As of 2025, businesses whose taxable turnover does not exceed ISK 2,000,000 in any twelve-month period are exempt from the obligation to register for VAT. Once your sales cross this threshold, registration becomes mandatory. Both domestic and foreign self-employed individuals selling taxable goods or services in Iceland must register by completing Form RSK 5.02 and submitting it to the Directorate of Internal Revenue. Confirm the current threshold and registration procedure directly with Skatturinn.

Is Iceland a good location for tech or digital startups?

Iceland is earning an increasing reputation as a base for technology and digital enterprises, particularly in areas such as cloud computing — where the abundance of affordable geothermal energy makes it attractive for data centre operations — as well as gaming and creative technology. Tax incentives for both investors and qualifying innovation companies are available, subject to certain conditions. The country’s digital infrastructure is excellent, its workforce is well-educated, and the R&D incentive framework provides meaningful support for research-intensive businesses. Founders with a research focus should also explore Rannís for grant funding opportunities.