Insights
How to Start a Business in Iceland (2026): A Practical 7-Step Guide
Insights · By YuDing Wang · Updated 30 October 2026
Most foreign companies start a business in Iceland by registering a private limited company (ehf.) or a branch with the Register of Enterprises at Iceland Revenue and Customs (Skatturinn). An ehf. needs at least ISK 500,000 of share capital, an Icelandic ID number (kennitala), VAT registration once sales start, a bank account and payroll set up before the first hire. If you need people on the ground before the company exists, an employer of record can employ them, provided they can already work in Iceland. These are the seven steps, in order.
Last reviewed in October 2026. General information, not legal or tax advice; confirm capital, fees and licences with an Icelandic lawyer or accountant before you register.
Your options at a glance
| Route | Set-up | Liability | Can it employ staff? | Best for |
|---|---|---|---|---|
| Private limited company (ehf.) | Articles and registration with the Register of Enterprises; minimum share capital ISK 500,000 | Limited to the capital contributed | Yes, and it can apply for work permits | Most foreign subsidiaries; local contracts and invoicing |
| Public limited company (hf.) | Similar registration with higher capital and governance requirements | Limited | Yes | Larger operations and outside investors |
| Branch of a foreign company (útibú) | Registered with the Register of Enterprises; the foreign parent stays liable | The foreign parent is liable | Yes | Operating in Iceland as the same legal person |
| Employer of record | No entity; your hire is employed locally on your behalf | The local employer carries the employer duties | Yes, for people who can already work in Iceland | First hires before, or instead of, a company |
How to set up an Icelandic company in seven steps
| Step | What happens | Who handles it |
|---|---|---|
| 1. Choose the form and the name | Decide between an ehf., an hf. and a branch, check that the name is free, and agree shareholders, board and managing director. Residence rules apply to managers and board members, so check them early. | Founders, with an Icelandic lawyer |
| 2. Prepare the documents | Articles of association, the memorandum of association and the founders’ details. Foreign documents usually need an apostille and an Icelandic or English translation. | Lawyer |
| 3. Pay in the share capital | At least ISK 500,000 for an ehf., paid in before registration, with confirmation from a bank or auditor. | Founders and bank |
| 4. Register the company | File with the Register of Enterprises at Skatturinn. The company receives its own kennitala, which identifies it for tax, banking and payroll. | Register of Enterprises |
| 5. Register for VAT | Register once taxable sales start. The standard VAT rate is 24% and the reduced rate 11%. | Accountant |
| 6. Bank account and licences | Open a corporate account; banks run detailed checks on owners and the source of funds. Some activities need a licence, for example an operating licence from the District Commissioner (Sýslumaður) for a restaurant, bar or guesthouse. | Bank; licensing authority |
| 7. Set up as an employer | Before the first hire, register for withholding tax and the payroll levy, choose the collective agreement that covers each role, and set up pension and union fund payments. | Accountant or payroll provider |
Icelandic limited companies pay corporate income tax at 20%. Your accountant will confirm which rules apply to your business and when the first returns are due.
Hiring before your company exists
Registration, the bank account and payroll set-up can take several weeks. If a candidate is ready now and can already work in Iceland, as an Icelandic, EEA or Swiss citizen or with an existing permit, an employer of record can employ them from the start date.
Your hire is employed under an Icelandic employment contract and the right collective agreement, and paid through Icelandic payroll, while your company directs the work. When your company is ready, the employee can move to it under a new contract. How NNRoad’s employer of record service in Iceland works.
A person who needs a new work permit cannot be hired through an employer of record in Iceland, because new temporary work permits are not issued for jobs with a temporary-work agency. Your own Icelandic company, once registered, can employ the person and apply for the permit. See Expat Employment in Iceland.
Doing business in Iceland without an Icelandic company
You do not always need a local entity. You can sell to Icelandic customers from abroad, work through a distributor or agent, engage genuinely independent contractors, or employ staff through an employer of record. Each route has limits: a full-time person who follows your instructions is an employee whatever the contract says, and an agent or employee who concludes contracts in your name can create a taxable presence. Take tax advice before your team in Iceland starts negotiating or signing for the company.
EOR, PEO or GEO: which do you need?
A professional employer organization (PEO) shares employer duties with a company that already employs people in Iceland itself. An employer of record, sometimes called a global employment organization (GEO), is the employer. If you have no Icelandic company, you need an EOR, and in Iceland the EOR must be registered as a temporary-work agency because the employee works under your direction.
Starting a business in Iceland as a foreigner
Foreign individuals and companies can own an Icelandic company. Every shareholder, board member and manager needs a kennitala; people who do not live in Iceland can obtain a system ID number through the bank, lawyer or accountant handling the registration. EEA and Swiss citizens can live and work in Iceland without a permit. Other nationals who will live and work in Iceland, including as the company’s managing director, need a residence and work permit, which the Directorate of Immigration has handled since July 2026.
When to move from an EOR to your own company
- The team is growing and the fixed cost of an Icelandic company is now lower than the EOR fees
- You need to hire people who require a new work permit
- You will sign contracts with Icelandic customers or invoice locally
- Your tax adviser sees a risk of a taxable presence in the roles you plan
Employees then move to your company under new employment contracts. Agree with them how their length of service is recognised for notice and holiday entitlements. Once the company employs staff, we can run its payroll: see Iceland payroll.
Questions about starting a business in Iceland
How much capital does an Icelandic ehf. need?
At least ISK 500,000, paid in before the company is registered.
How long does it take to set up a company in Iceland?
Registration itself is usually quick once the documents are complete. Allow several weeks overall for kennitala numbers, apostilles and translations, the bank account, and tax and payroll set-up.
Can a foreigner open a company in Iceland?
Yes. Foreign individuals and companies can own an ehf. or register a branch. Each owner and manager needs a kennitala, and a non-EEA national who will live and work in Iceland needs a residence and work permit.
What licence do I need to open a bar or restaurant in Iceland?
An operating licence from the District Commissioner (Sýslumaður), which involves opinions from the municipality, the health authority, the fire authority and the police. Apply well before opening.
Can I hire employees in Iceland without an Icelandic company?
Yes, through an employer of record, provided the person can already work in Iceland. The employer of record employs the person under the right collective agreement and runs payroll, tax and pension for you.
What taxes does an Icelandic company pay?
Corporate income tax at 20%, VAT at a standard 24% (11% reduced) on sales, and on salaries the 6.35% payroll levy and an 11.5% employer pension contribution.
Need to hire before your Icelandic company is ready?
We can employ your first people in Iceland while you set up the company, if they can already work there. Tell us about the role and we will reply with the annual cost and a realistic start date.
Related
What a hire costs each month and each year.
Collective agreements, leave and notice in detail.
Official sources: Iceland Revenue and Customs (Skatturinn), key rates 2026; Temporary work agencies (island.is); Work permits (island.is); VR, terms for employers. Also: Act No. 129/1997 on pension contributions, Act No. 30/1987 on holidays, Act No. 19/1979 on notice and sick pay, Act No. 139/2005 on temporary-work agencies and Act No. 97/2002 on foreign nationals’ right to work. Reviewed October 2026; general information, not legal or tax advice.