Iceland isn't an EU member, but it's part of the European Economic Area through EFTA, which gives Icelandic firms the kind of cross-border market access UK firms lost after Brexit. With roughly one limited company for every ten residents, it's also a genuinely business-dense country for its size. Here's what it takes to start a business in Iceland in 2026.
1. Which business structure fits you?
Before you register anything, it helps to know what you're actually choosing between.
- Einstaklingsfyrirtæki (sole proprietorship). Registered under your own national ID (kennitala), with no separate legal entity, no minimum capital, and no liability protection.
- ehf (einkahlutafélag). Iceland's standard private limited company and by far the most common structure, including for foreign founders. Minimum share capital is ISK 500,000, roughly €3,300 to €3,500.
2. Register your business
ehf companies register with Fyrirtækjaskrá, Iceland's Register of Enterprises, administered by Skatturinn (the tax and customs authority). The registration fee runs around ISK 130,000, and electronic applications process in 3 to 5 business days once share capital is confirmed as paid. A state-authorized auditor or independent professional must confirm the capital payment before registration is accepted. Sole proprietorship registration is often free if you operate under your own name, though registering a separate trade name or for VAT can involve fees.
3. Get registered with Skatturinn
Your company's tax registration happens as part of the Fyrirtækjaskrá filing, with Skatturinn handling both corporate income tax and VAT registration where applicable.
4. Check licenses and permits
Iceland doesn't issue a single national business license. What you need depends on your activity; certain operations require a special permit, typically regulated by the Administration of Occupational Safety and Health or another relevant authority.
5. Understand Icelandic taxes
Limited companies (ehf and hf) pay a flat 20% corporate income tax on worldwide profits, a rate that's been stable since 2011 and held through the 2026 budget, among the lowest in the OECD. Partnerships and other legal entities that don't qualify for limited-liability treatment face a considerably higher 37.6% rate, which is part of why an ehf is the default recommendation for most founders.
VAT (VSK) is 24% standard, with an 11% reduced rate covering books, periodicals, food, accommodation, and select services. Registration is mandatory once turnover exceeds ISK 2,000,000 in any 12-month period; foreign suppliers of electronic services to Icelandic consumers must register from their very first sale, with no threshold.
6. Stay compliant
All limited companies must submit annual financial statements to Iceland Revenue and Customs, due no later than one month after approval or eight months after the fiscal year end, whichever applies. VAT-registered businesses file returns bi-monthly. Monthly payroll withholding applies once you have employees.
Iceland business costs at a glance
| Item | Cost |
|---|---|
| Sole proprietorship registration (own name) | Often free |
| ehf registration fee | ~ISK 130,000 |
| ehf minimum share capital | ISK 500,000 (~€3,300 to €3,500) |
| Corporate tax (ehf/hf) | 20% flat |
| Corporate tax (partnerships/other entities) | 37.6% |
| VAT (VSK), standard rate | 24% |
| VAT registration threshold | ISK 2,000,000 turnover |
Frequently asked questions
What's the corporate tax rate in Iceland?
A flat 20% for limited companies (ehf and hf), stable since 2011. Partnerships and other entities without limited-liability status face a considerably higher 37.6% rate.
How much capital do I need to start an ehf in Iceland?
ISK 500,000, roughly €3,300 to €3,500.
How much does it cost to register an ehf in Iceland?
The registration fee runs around ISK 130,000, with electronic applications processing in 3 to 5 business days once share capital is confirmed as paid.
When do I need to register for VAT in Iceland?
Once turnover exceeds ISK 2,000,000 in any 12-month period. The standard VAT rate is 24%. Foreign suppliers of electronic services must register from their very first sale, with no threshold.
Is Iceland part of the EU?
No, but it's part of the European Economic Area through EFTA, giving Icelandic firms cross-border market access.
Fees and rates above come from Fyrirtækjaskrá and Skatturinn as of 2026, and they do change over time, so double check before you file. None of this is legal or tax advice. Talk to an Iceland-qualified accountant or lawyer about your specific situation.