Business in Iceland

A business in Iceland can operate as a sole proprietorship, ehf., hf., sf., slf., ses. or another partnership or cooperative form. A sole proprietorship is registered under the owner's kennitala, has no minimum capital or registration fee, and leaves the owner with unlimited liability. An ehf. is a separate legal entity and requires at least ISK 500,000 in share capital, fully paid at formation. An hf. requires at least ISK 4,000,000 in share capital and at least two founders. In an sf., the partners have direct, joint and unlimited liability; slf. and ses. have different partnership structures that require separate legal and tax review. Registration normally records the business name, Icelandic address, formation date, owners and main ISAT activity with Skatturinn and Fyrirtækjaskrá. An ehf. generally needs form RSK 17.21, a memorandum, founding minutes, articles of association and a beneficial-owner notification, with documents prepared in Icelandic. Electronic ehf. registration requires rafræn skilríki; processing commonly takes 3 to 5 business days electronically or 2 to 3 weeks on paper. A non-Icelandic director or procuration holder may need a system ID from Registers Iceland. Beneficial ownership covers direct or indirect control of more than 25% of capital or voting rights and other forms of control; if control is unclear or widely dispersed, the person actually directing the entity is recorded. A passport or tax identification number may be needed where the person has no kennitala. A foreign company branch needs separate registration, an Icelandic address, a stated purpose, a branch manager, a power of procuration, a foreign registration certificate issued within the previous three months, the latest annual accounts and beneficial-owner information. Its VAT and tax position depends on the Icelandic activity and whether it has a permanent establishment. Bookkeeping is required regardless of legal form, and businesses file annual tax returns. Limited companies, partnerships, cooperatives and ses. generally file annual financial statements no later than one month after approval or within eight months after the end of the financial year, while register changes are generally reported within one month. Tax registration changes or the end of taxable activity must generally be reported within eight days. Taxable goods and services normally require VAT registration, except where the taxable turnover stays at or below ISK 2,000,000 in a rolling 12-month period or the activity is exempt. VAT registration uses RSK 5.02 and should normally be completed at least eight days before trading begins. The standard VAT rate is 24% and the reduced rate is 11%; declarations and payments generally follow two-month periods. VAT invoices normally show the date, seller and buyer name and kennitala, VAT number, description, quantity, unit and total price, and VAT separately. Corporate income tax is generally 20% for ehf. and hf. and 36% for sf. and slf.; self-employed income uses progressive taxation, so current rates and municipal components should be checked before filing. Activity-specific permits may involve a municipality, public health authorities, the District Commissioner, the Icelandic Tourist Board, the Icelandic Transport Authority, the Environment Agency, the Administration of Occupational Safety and Health or MAST for food-related activities. Grants are available through Grants Plaza and Ísland.is, but they are competitive rather than general entitlements. Rannís funds such as the Technology Development Fund may accept individuals or companies younger than five years, with schemes offering up to ISK 2,000,000 and no matching-fund requirement; applications and reporting rules depend on the programme. Business transfers require separate checks for share transfers and asset transfers, including contracts, taxes, permits, ownership records and beneficial-owner information. Closing a business requires VAT and tax deregistration, final returns, accounts, record retention and settlement of liabilities. Voluntary dissolution and liquidation follow the company-law and register process, while bankruptcy transfers financial rights and duties to the bankruptcy estate. A sole proprietor or an owner of an unlimited-liability form does not receive automatic protection from business liabilities.