Business structures and how to register them

The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. 

Introduction

Intro to business structures

The main business structures in Iceland are described below. Each entry is explained in more detail in a separate entry further down the page. There you will find information on how to register that business structure with the Director of internal revenue with links to download the relevant forms. 

StartupTools is a website with free resources for startups. You can download fair and standardized investment documents (term sheet, subscription agreement and shareholders’ agreement) as well as founders’ agreement, employment agreements and more. The documents contain English translations of Icelandic text and thorough definitions, descriptions and comments on words and expressions to help you to understand and complete these documents yourself.

Overview

Overview of business structures

A self-employed business enterprise (Sjálfseignarstofnun í atvinnurekstri (ses.)

Private business organizations are listed in the corporate register of the Internal Revenue Service. The minimum initial capital is ISK 1,000,000 and all initial capital shall be paid upon registration. Initial data must be submitted to business registries. The turnaround time for filing a self-employment institution is generally about ten to twelve business days from the date of submission of data to business registers, if the submitted data is satisfactory and payment (or payment receipt) is included with the submission. 
Registration cost: ISK 131,000
Minimum share capital: ISK 0

 

Individual Company (Einstaklingsfyrirtæki)

A company that is run on an individuals own personal kennitala is called an Individual company. This form of operation is suitable for personal operations that are either intended for the short term, expect minimal annual income or involve little risk. The owner’s responsibility for the obligations that the company makes are direct and unlimited. There is no need to submit capital at its establishment and the registration fee is nothing unless the individual owns the business with a special name. If using a special name, the business must be registered in the Companies Register.
Registration cost: ISK 0
Minimum share capital: ISK 0

Private Limited (Einkahlutafélag ehf.)

A private limited company may have one shareholder and the minimum share capital is ISK 500,000. There is no limit on the share capital or the number of shareholders, and this form of company is suitable for small and large companies. The vast majority of businesses registered in Iceland are Private limited companies.
Owners’ liability is limited to share capital. The registration cost ISK 131,000 can be deducted from the ISK 500,000 minimum share capital that you have to deposit.
Registration cost: ISK 131,000
Minimum share capital: ISK 500,000

 

Limited Companies (Hlutafélag Hf.)

The share capital of this form of business shall be divided into at least two parts and shall be at least ISK 4,000,000. The shareholder form is primarily considered to be suitable for larger and more extensive operations, with the objective of being listed on the stock exchange.
The liability of the owners is limited to their share in the company.
Registration cost: ISK 256,000
Minimum share capital: ISK 4,000,000

 

Partnerships   (Sameignarfélag sf.)

To start a Partnership Company, the founders need to be two or more owners, whether individuals or other legal entities. Responsibility of all owners is direct and unlimited. Direct liability refers to the position of creditors in such a way that they can therefore go directly to the personal property of the owners. Undivided ownership of the owners actually means that every owner of the company guarantees all its debts and where there is an unlimited guarantee it means that the owners do so with all their assets. The main advantages of these forms of association are that initial costs are not high and the legal environment is fairly simple, the company is easy to liquidate, there are sufficient resources to withdraw funds and taxation is somewhat favorable if profits are generated. Requires the owner’s responsibility, but it is very comprehensive as it covers the obligations that the co-owners make in the name of the company. 
Registration cost: ISK 89,500 + ISK 5,000 to set up a new social security number for the partnership
Minimum share capital: ISK 0

 

Syndicates / Co-operatives  (Samlagsfélag Slf)

Co-operative societies are registered with the corporate register of the Director of Internal Revenue. Initial data must be submitted to business registers and registration fees paid. A social security number will be created when registering a company. The ÍSAT number (Icelandic Industry Classification) is registered with an organization according to information from the founders about the company’s main activities. The founders and later members of a partnership can be legal persons and legal entities. It is compulsory to enter into a written association agreement on listed companies and the agreement must be signed by all the founders and those who later join the company. If the Board of Directors is elected, the Managing Director and the auditors or inspectors are elected, a certified copy of the minutes of their terms of office shall be included, together with their declaration that they will take up the position. The company contract must state whether the company is independent or an independent taxpayer. Attention is drawn to the fact that a couple alone or with their children cannot form a joint venture or partnership that is an independent taxpayer.
Registration cost: ISK 256,500 
Minimum share capital: ISK 0  

Branches of foreign companies in Iceland (Útibú erlendra félaga á Íslandi)

Branches of foreign companies are registered with the company register. The necessary data must be submitted to the business register and the registration fee paid. The turnaround time for filing a foreign company’s branch is generally about ten to twelve business days from the date the data is submitted to the business register if it is satisfactory and a payment (or payment receipt) is included with the data. 
Registration cost: ISK 256,500
Minimum share capital: ISK 0

 

Registration of companies forms (ehf./hf./sf./slf./ses.)    

RSK 17.20   Notice of establishment of a limited company (hf.)    

RSK 17.21   Notice of establishment of a private limited company (ehf.)  

RSK 17.22   Notice of self-employment in business (ses.)   

RSK 17.24   Announcement of the creation of a joint venture    

RSK 17.25   Notice of registration of the business name of the individual company    

RSK 17.26   Notice of establishment of a partner company   

RSK 17.27   Real Owner Announcement ( New for Registration Only ) (English)   

RSK 17.28   Notice of real owners – NGOs and other similar parties

 

Here is a list of all forms on the RSK website.

A self employed

A self-employed business enterprise

Private business organizations are listed in the corporate register of the Internal Revenue Service. Initial data must be submitted to business registries and registration fees paid. Cash, debit card or deposit can be paid (see tariff).

The turnaround time for filing a self-employment institution is generally about ten to twelve business days from the date of submission of data to business registers, if they are satisfactory and payment (or payment receipt) is included with the data. You can send a scanned copy of basic data to the email address fortaekjaskra@rsk.is It is not necessary to submit original copies of the data.

The minimum initial capital shall be ISK 1,000,000. and all initial capital shall be paid upon registration. If the initial capital is paid in other than cash, confirmation must be obtained from a lawyer or a certified public accountant that the property in question exists.

The social security number will be created when registering a company. The ÍSAT number (Icelandic Industry Classification) is registered with an organization according to information from the founders about the company's main activities.

Initial documentation required for registration is in addition to a Notice Form, Initial Meeting, Articles of Association (Charter) and a Notice of Real Owners.

Here you can find a sample of the necessary basic data in a word document. You can edit and customize to your own needs, then print and sign.

Take care to ensure:

  • The notification form is filled in according to the basic data.
  • Handwriting samples are correct.
  • All signatures are correct.

Individual company

Individual company

Before you start your business you must contact the relevant organisations and obtain the relevant trading licenses, permits and insurances. 

Expected annual income less than ISK 2,000,000 

If you are confident that your revenue will be less than ISK 2,000,000 for the year, it is possible to start trading using your own personal kennitala without informing RSK. You will just need to inform RSK of your income and expense figures in your annual personal tax return.

Expected annual income over ISK 2,000,000

You can start test-trading your business using your personal kennitala, but as soon as you are aware that you will generate over ISK 2,000,000 in the tax year you will have to file a RSK_5.02form with RSK to register withholding payments for:

1.      VAT

2.      Payroll register 

By registering your business with RSK you are committing to making monthly payroll payments (12 per year) and bi-monthly payments (6 per year) for VAT (technically, you should only have to do one VAT return per year if your revenue is less than ISK 4,000,000). It is important that you make these payments on time, as failure to do so will lead to fines, regardless of whether your business generates any income. 

Payroll payments must be made by the 15th of each month and VAT payments are to be made by the the 5th of the following month (1 month plus 5 days). Late payments will incur a daily fine which increases up to 10% on both VAT and Payroll outstandings.

In Iceland there is a presumptive employment income on the self-employed. This means that dependent upon your proposed business activity sector, there are presumed income thresholdscomparable to somebody employed in a similar job with similar work experience and qualifications. Your payroll withholding tax will be calculated in accordance with this presumed figure. 

For example Category B (9) – A person who is starting a business and who works alone or with one employee. This category includes only those who are self-employed for the first time, and only for one year from the beginning of the activity.

Monthly salary ISK 465,000

Annual salary ISK 5,580,000 

When completing the RSK_5.02 form, if the “Estimated monthly remuneration“ amount is less than the expected presumptive payment for your business activity in your relevant sector, then the monthly presumptive payment payroll withholding amount should be adjusted accordingly by RSK. This does have to be approved by RSK as detailed below.

Estimated income tax year

Income lower than the reference amounts

If the Director of Internal Revenue considers that the estimated repayment schedule in the tax year is lower than the minimum reference amount, he shall determine the repayment and withholding thereof in accordance with the rules. The Director of Internal Revenue may only deviate from the minimum according to the guidelines on the basis of written explanations and necessary documentation from the person and / or the employer.

If a person is asked to pay a lower remuneration than the reference amount, information must be provided on the scope and nature of the activity and his or her job, information on other paid employment and, as appropriate, information on the price of his or her employment or employees who work in his or her service. Furthermore, in the case of a person’s business operations, the results of operations in the past year must be accounted for and a projected plan of operations and income in the taxable year, as well as an account of the capital tied up in the operation.

Low calculated remuneration – annual report

If a person’s calculated remuneration is so low according to an approved plan that his or her own cash payments and his / her spouse will not be paid during the year, he can apply to the Director of Internal Revenue to submit “Definition for calculated remuneration” once a year. If the application is approved, the applicant must take care not to use his personal discount against other income.

Calculated remuneration less than ISK 450,000

If an estimated remuneration of operations is less than ISK 450,000 per year, this will be excluded from withholding

Advantages

There are many advantages to test-trading your business as an Individual company before officially registering your business. It can save you time, effort and money. In order to register your business you need to set up a separate business bank account, pay money into the account (ISK 500,000 for a limited company and ISK 4,000,000 for a public company) register for withholding taxes such as VAT and Payroll which will likely mean that you need to hire an accountant unless you have a very strong understanding of bookkeeping and company formation rules in Iceland. You can test the market, fail quickly / pivot / iterate on your idea to find your core customer base before fully committing to all the time and money cost formalities of business formation. If your business does not succeed, you won´t have to pay to dissolve the business.

Disadvantages

You are personally liable for any debts / fines / litigation on the business. This means that your personal assets are at risk if anything goes wrong with the business. There is also a lack of perceived business credibility compared to a limited company. You may also be unable to gain certain types of business insurances or to bid for particular jobs or tenders.

Private Limited Company

Private Limited Company (ehf)

The table below details the typical procedures, time and cost requirements to register a small-to medium-sized Private limited company online to start up and formally operate in Iceland. Although the registration should only take 4-5 days to process, those who start a business must report it to the Directorate of Internal Revenue, no later than 8 days before the start of operations.

Step

Procedures

Time to complete

Associated costs

1

Search for company name 
Agency: Register of Enterprises

You need to verify that the business name you want to register for your business is free and does not already exist.

Enter the company name of the company to be established, its legal domicile and founding date. The computer system will check to see if there are any company names or trademarks on the list that could possibly prevent the listing of the new company. This is a simple search only and RSK employees will look more closely at the company name when the data is processed. Although there is no indication of possibly too similar a company name, it does not have to mean that the company name will be approved. Foreign extras can be registered but it must be the direct translation of the Icelandic main name of the company.

You can also register a special postal address if the mail is not to go to the company’s domicile. If the address is in the home of another company or person, it is good to register with another party (reach out). The identity number of the person / company must be entered. 

Less than one day (online procedure)

no charge

2

Apply for registration with Register of Enterprises 
Agency: Register of Enterprises 

To register your business with the Register of Enterprises, you must first register for electronic identification.

Once you have your electronic ID you can register your Private limited company by logging in to your RSK account. 
Click on General from the top menu and you will get a drop down menu. Click Sign up under the Business header of the drop down menu and you will be taken to an online form which will prompt you with the relevant business information details that you need to fill out. RSK have created a video of the process (in Icelandic) that you can watch here.

In order for the registration to be approved, you must submit information about the company’s owners. This is done by filling out a separate form RSK 17.27. You submit the completed form with a 5 digit application number that you are assigned and prompted with on the opening page of the application form. The RSK processing form must be submitted with the 5 digit application number or scan it and send to rafraenn@rsk.is. 

The online business registration application will take you through a series of pages to fill out information related to the company being established.:
1. Enter details regarding founders and shareholders 
2. Enter details about the business purpose
3. Enter additional details such as share amounts and voting rights 
4. Upon completing the registration, the company’s founding documents are automatically prepared by RSK
5. Once the initial documents have been approved they will be saved and emails will be sent to all parties who need to sign the documents electronically
6. They will receive a message to their phone asking them to enter their pin number to complete the registration
7. Payment of registration fees and notification fees are sent to your bank account

The company’s founding documents are automatically prepared by RSK, but you can also upload your own initial documents.
The founding documents consist of the notification, articles of association, charter or founding order by number of founders and founding or founding meeting by number of founders.

The register is also in charge of advertising the incorporation notice in the Official Gazette, the official journal. The total registration fee is ISK 131,000 which includes the company identification number (ISK 5,000), and the fee for publishing the notification in the Official Gazette (ISK 1,000). 

1 day

no charge

3

Deposit initial capital in bank account 
Agency: Commercial Bank

Claims for payment of registration fees and notification fees are now sent directly to the registrar’s home bank and payment registration fees are only carried out in this way. The ISK 500,000 minimum share capital must exist and be in the bank account of one of the founders of the company until the company is registered and a business bank account has been opened. The registration fee payment ISK 131,000 can be deducted from the ISK 500,000 minimum share capital, and the remainder of the minimum share capital can be withdrawn and used as soon as the company has been registered and received the new company kennitala. 

The registration process should take between 4-5 days to complete once the payment has been made. The registrant no longer has to transfer the registration fee to the Director of Internal Revenue. If a registrar does not have a home bank, you can select another payer at the last stages of registration.

Once all the documents have been signed and the registration fee paid, the data is submitted to the employees of the RSK business registers who either record the data or request corrections if necessary. 

Between 4-5 days

ISK 131,000

4

Obtain a VAT number
Agency : Directorate of Internal Revenue

Exempt from the obligation to register for VAT are those who sell labor and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity (was 1.000.000 ISK before January 1st 2017). The registration duty does not apply to employees. 

Applicants can notify the Directorate of Internal Revenue online by logging into www.skattur.is with their web key and filling out form 5.02 (download English translation guidance instructions for completing the form here). The signed form and notification can also be sent via email to the Register of Enterprises rsk@rsk.is or by visiting the offices of the Director of Internal Revenue at Laugavegur 166, 105 Reykjavík. 

The Director of Internal Revenue will then assign the applicant company with a VAT number which the company shall use in it’s economical activities.

Notify tax authorities of employment of workers 
Applicants can notify the Directorate of Internal Revenue online at the same time using the same form 5.02.

Withholdings from employment income are covered under the PAYE system. An employer has a monthly reporting obligation, as well as a withholding obligation related to income. In addition, employers are obligated to pay an insurance tax / social security tax. In the 2020 tax year, the insurance tax rate is a total of 6.35% . Of this, the insurance premium itself is 4.90%, the employment insurance premium is 1.35%, and then a supplement is added to the Guarantee Fund (0.05%) and the market fee (0.05%).

Employers are required to calculate and deduct taxes from all salaries and wages paid out to employees. Taxable income includes, for example cash payments, wages, fees, sickness allowance and benefits in kind. Employers are also obliged to deduct mandatory (and voluntary) fees to workers unions, pension funds as well as to pay wage-related expenses. 

There is an interactive payroll calculator in English where employers can calculate anything regarding salaries and compensations of employees.

Less than one day (online procedure)

no charge

Syndicates

Syndicates / Co-operatives

Co-operative societies are registered with the corporate register of the Director of Internal Revenue. Initial data must be submitted to business registries and registration fees paid. Cash, debit card or deposit can be paid (see tariff).

The turnaround time for filing a joint venture is generally about ten to twelve business days from the date the data is submitted to the business records, if they are satisfactory and a payment (or payment receipt) is included with the data. You can send a scanned copy of the basic data to the email address fortaekjaskra@rsk.is . It is not necessary to submit originals of data.

An affiliate is a form of partnership that is based on the agreement of two or more parties on joint financial activities where members are divided into two types, on the one hand there is at least one member who bears direct, unlimited and unlimited responsibility for the company’s obligations and on the other hand one or more members who guarantee the company’s debts to the extent of their contribution (contributors). Thus, their financial risks are similarly limited to members of public limited companies, ie. at a certain amount.

The social security number will be created when registering a company. The ÍSAT number (Icelandic Industry Classification) is registered with an organization according to information from the founders about the company’s main activities.

The founders and later members of the partnership can be legal persons and legal entities. It is compulsory to enter into a written association agreement on partnerships that are registered and the agreement must be signed by all the founders and those who later join the company.

If the Board of Directors is elected, the Managing Director and the auditors or inspectors are elected, a certified copy of the minutes of their terms of office shall be included, together with their declaration that they will take up the position.

Actual owners of joint-stock companies are obliged to register, and notification of them shall be accompanied by the company’s initial data.

The company agreement must state whether the company is an independent or independent taxpayer. Attention is drawn to the fact that a couple alone or with their irregular children cannot form a joint venture or partnership that is an independent taxpayer.

A sample of the necessary basic data can be obtained here. You can change and customize the social contract to your own needs, print and sign.

Take care to ensure:

  • A notification form is filled out in accordance with a social agreement.
  • Handwriting samples are correct.
  • All signatures are correct.

Branches of foreign

Branches of foreign companies in Iceland

Branches of foreign companies are registered with the company register. The necessary data must be submitted to the business register and the registration fee paid. Cash, debit card or deposit can be paid (see tariff).

The turnaround time for filing a foreign company's branch is generally about ten to twelve business days from the date the data is submitted to the business register if it is satisfactory and a payment (or payment receipt) is included with the data. You can send a scanned copy of basic data to the email address fortaekjaskra@rsk.is It is not necessary to submit original copies of the data.

A foreign company wishing to establish a branch in Iceland must submit a notification to the corporate register of the Director of Internal Revenue with the following information:

1. Branch name The name of the branch shall be the name of the foreign company plus: a branch in Iceland. Example: If a company is called Hydro Pro Ltd. , the name of the branch will be: Hydro Pro Ltd., a branch in Iceland.
2. Address in Iceland  
3. Purpose of the branch  
4. Branch Manager Name, social security number and address.
5. Corporate Writing / Procurement Authorities The branch manager commits the company according to Art. Act (see Article 140, paragraph 2), but the Board of Directors may also grant a procuration mandate.
The following information must be disclosed about the foreign company which is the founder:  
6. Founder Name, domicile, registration number and date of registration.
7. Legal form Foreign operations of the company, ie whether the company is a public limited company or a private limited company.
8. Date of approval  
9. Share capital  
10. Purpose  
11. Management  

A notification shall be sent to the corporate register of the Director of Internal Revenue and signed by the branch manager.

The following accompanying documents must accompany the notification. The data must be in Icelandic, English, Danish, Swedish or Norwegian, or translated into any of these languages:

  • Registration certificate, ie confirmation of registration of the foreign company in its home country. It must not be older than three months.
  • Mandate. The overseas board of directors provides a commission for branch managers as well as a procurator.
  • Annual accounts, ie the Company's last annual financial statements.
  • Announcement of real owners - RSK 17.27 - Actual owners together with the attorney or majority of the board shall sign the notification.