IcelandIceland Company Formation for Non-Residents: What You Need to Know

• Registering a company in a foreign country can be a tedious and exhausting process, especially when it is in a country that you are not familiar with. For Iceland company formation there present endless rules and regulations just to incorporate which can be a deterring factor for many. Our team here at Tetra Consultants aims to make your ability to register company in Iceland as seamless and hassle-free as possible. In this article, we will discuss all the need to know for a foreigner or non-resident trying to participate in Iceland’s company formation.

Step-by-step process of Iceland company formation

Selecting business structure 

• When incorporating a company in Iceland, it is essential to choose the right business structure to ensure successful operations. Iceland offers various business structures, each with its own taxation requirements, minimum capital thresholds, and regulations. Examples of business structures in Iceland include limited liability companies, public limited companies, and even branch offices for international firms.
• Among these structures, limited liability companies (LLCs) are commonly chosen by foreign investors due to their flexible ownership and management options, as well as tax efficiency. LLCs in Iceland benefit from lower corporate tax rates. With a standard tax rate of only 20%, Iceland proves to be an attractive place for companies looking to maximize their profitability.

Selecting and reserving the company name

• Choosing an appropriate company name in Iceland is simple and just requires you to select a name that complies with naming guidelines and does not infringe upon existing trademarks or copyrights. It is important to conduct a thorough search to ensure the chosen name is available for registration.

Articles of Association 

• After selecting and reserving your company name, you will be required to draft the articles of association which outline the company’s purpose, share structure, ownership structure, business activity, and other important information regarding the company. 

Appoint directors and shareholders

• Subsequently, after drafting the articles of association, you will have to decide for your company who the appointed directors and shareholders are. It is stated by Icelandic law that at least one of the directors of your company has to be a resident of the European Economic Area (EEA).

Obtain a Kennitala

• Next, you will have to apply for a Kennitala which is a unique identification number assigned to individuals and legal entities in Iceland for the purpose of tax and social security matters. 

Register with Icelandic Company Registry

• Lastly, once you have the required supporting documents for company registration such as the Articles of Association, proof of address, and initial capital deposit, you will then be required to submit the registration documents to the Icelandic Companies Registry. 

Fulfill tax and legal requirements 

• In order to fulfill tax and legal requirements in Iceland, you will have to register with the Icelandic Directorate of Internal Revenue and apply for a VAT number if applicable. There will be annual legal and tax requirements that have to be complied with in order to continue operating as a business entity. Examples of these requirements include filing annual tax returns and submitting annual financial statements.

Shareholder structure & residency requirements during Iceland company formation

• An important thing to note as a non-resident when incorporating in Iceland is the regulations and requirements involved with the shareholder structure in Iceland. Icelandic laws state that the majority of shares in an Icelandic company must be owned by individuals or entities from the European Economic Area (EEA). Additionally, there are residency requirements as briefly stated above which require at least one director of the Icelandic business entity to be a resident of the EEA. Tetra Consultants team of business setup experts are proficient with providing nominee director and shareholder services. 

Advantages and disadvantages of incorporating in Iceland as a non-resident

Advantages 

Ease of doing business

• Iceland has a relatively easy process of incorporation and a government that actively promotes foreign direct investment. As a result, this has cultivated an entrepreneurial environment that welcomes new businesses from all over the world.

Access to markets 

• Due to Iceland’s strategic location, it grants business owners access to the European market, and as a member of the European Economic Area, companies can complete trade with relatively low barriers.

Favorable tax environment 

• Iceland offers competitive tax rates that provide an attractive environment for businesses. It should be noted that Iceland also offers non-resident companies various tax exemptions and incentives such as reduced corporate tax rates for certain industries and activities.

Strong legal framework

• Iceland possesses a strong legal framework that allows for contract enforcement, protection of intellectual property, and reliable investor protection for businesses incorporated in Iceland.

Disadvantages

Language and cultural differences

• A factor of consideration when choosing to incorporate in a country should also be the language and cultural differences in a country as compared to where the business owners are from. Fortunately, despite Icelandic being the official language in Iceland, English is still widely spoken and can be used for business communication. However, making the effort to understand business customs and norms over in Iceland may help non-residents assimilate into the business culture easier.

Tax obligations for non-residents

Corporate tax

• The corporate tax is set as a standard 20% in Iceland. However, it is vital to note that certain industries and business activities qualify the business for reduced tax rates and tax incentives. 
• Examples of these industries include the film and audiovisual industries. Iceland offers attractive incentives for film productions in the country showcasing the scenic landscapes and encouraging the tourism industry.

Value added tax

• For businesses that function around providing goods and services for customers, they will be subject to a standard rate of 24% VAT tax. Compliance with VAT regulations will involve timely registration, proper invoicing, accurate record keeping, and regular filing of VAT returns.

Withholding taxes

• Non-resident companies may be subject to a withholding tax if they involve certain types of income such as dividends, royalties, interest, and fees for technical services. The exact amount of withholding tax will depend on the type of income and the applicable tax treaty from where the income is coming from.

Transfer pricing

• If your non-resident company has related-party transactions with its Icelandic subsidiary or other related entities, it is important to comply with transfer pricing regulations. Transfer pricing rules aim to ensure that transactions between related parties are conducted at arm’s length prices. Non-resident companies should maintain proper transfer pricing documentation to support the pricing of their intercompany transactions and demonstrate compliance with the arm’s length principle.

Conclusion 

• In conclusion, non-residents should read up on the regulations and requirements involved with Iceland company formation, as well as the annual compliance matters post-company incorporation. Our team here at Tetra Consultants well experienced in the fields of incorporation, accounting, tax, and legal matters will assist our clients throughout each step of their business journey.
• Contact us to know more about company registration in Iceland and our team will revert within 24 hours. With a range of services from offshore company incorporation, nominee director and shareholder services, International Trademark Registration, corporate bank account opening, and many more ancillary services. Tetra Consultants is well-equipped to help our clients achieve their business goals and objectives.