Starting a company in a foreign nation may seem like a significant step. You must choose a business structure, register the firm, deal with taxes, understand how the local system operates, and make sure that you have the necessary permits.
Iceland can be an appealing option for entrepreneurs who want to build a business in a small but open economy. The country has relatively low corporate tax rates, a strict rule of law, and an active startup community. For people already living in Iceland, starting a business can also be an alternative to looking for traditional employment, particularly when they have skills that are in demand.
Still, setting up a company is easier when you know what to expect.
This guide explains how to start a business in Iceland in 2026, including who can start one, which business structures are available, how registration works, what taxes you need to consider, and what foreign founders should know before getting started.
Who Can Start a Business in Iceland?
Your first step is to make sure you have the legal right to live and work in Iceland.
For EEA and EFTA citizens, starting a business does not require a separate work permit. You still need to register your address with Registers Iceland and obtain a kennitala, which is Iceland’s national identification number.
For non-EEA nationals, the situation is different. You generally need a valid residence permit before operating a business. The source also notes that citizens of OECD countries who live outside Iceland may be able to form a limited company and serve as board members or managers under a general exemption from the Ministry of Industry and Commerce.
A kennitala is important either way. You need one before you can register your business.
Choose the Right Business Structure
Iceland has several business structures, and the best one depends on the size of your business, the level of risk involved, and whether you plan to work with partners or investors.
Private Limited Company (ehf)
The ehf, or einkahlutafélag, is the most common choice and is generally the option most suited to foreign founders.
It provides limited liability, which means there is a legal separation between you and the company. The source lists a minimum share capital of 500,000 ISK as of March 2026 and a registration fee of 140,500 ISK. The share capital must be paid in full when the company is formed.
Electronic applications can take around three to five working days when the requirements are met.
Sole Proprietorship
A sole proprietorship is a simpler option for freelancers, consultants, and people testing a smaller business idea.
It uses the owner’s personal kennitala, so there is no separate legal entity and no minimum capital requirement. The trade-off is that there is no liability protection, meaning the owner remains personally responsible for business debts.
The source lists the registration cost as 73,500 ISK as of March 2026.
General Partnership
A general partnership can be formed by two or more people. There is no minimum capital requirement, but all partners have unlimited personal liability.
The listed registration fee is 95,500 ISK as of March 2026.
Public Limited Company
The hf structure is aimed more at larger companies that may issue shares to the public.
The source lists a minimum share capital of 4,000,000 ISK and notes that the regulatory requirements are much heavier than those for an ehf.
Branch of a Foreign Company
Starting a new Icelandic business, you can easily register a branch in Iceland if you already run a business abroad.
A branch operates under the liability of its foreign parent company. The source lists a registration cost of 256,000 ISK as of March 2026, with processing typically taking 10 to 12 business days.
How to Register a Business in Iceland
RSK (Directorate of Internal Revenue) handles the business registration. The general procedure is quite simple; however, the specific paperwork will depend on the structure you select.
1. Get Your Kennitala
Before registering a business, you need an Icelandic identification number.
If you already have one through your legal residence registration, you are ready to move on. Otherwise, getting your kennitala should be your first step.
2. Prepare the Company Documents
The articles of association, founding agreement, minutes from founding meetings, and Forms 17.21 and 17.27 for beneficial ownership information are among the documents listed by the source for an ehf.
One point foreign founders should be aware of is that the company documents must be in Icelandic. Many people therefore use an Icelandic lawyer or accountant to help prepare the paperwork.
For a sole proprietorship, the paperwork is simpler and involves Form RSK 5.02.
3. Pay the Share Capital
For an ehf, the minimum 500,000 ISK share capital has to be deposited into the company’s bank account.
The source states that a certified auditor or independent professional must confirm that the capital has been paid before registration is accepted.
4. Submit the Application
Electronic registration is the fastest route for an ehf, although the people involved need Icelandic electronic identification.
Paper applications are also possible when electronic identification is not available.
The source gives an estimated processing time of three to five working days for electronic ehf applications. Sole proprietorship registrations can take around one to 14 business days.
5. Register for VAT if Necessary
If your taxable annual revenue is expected to exceed 2,000,000 ISK, VAT registration is required according to the source.
VAT registration is handled separately through RSK using Form RSK 5.02.
Understand Your Tax Obligations
Taxes are an important part of your business planning, even before you make your first sale.
Corporate Income Tax
Limited companies such as ehf and hf are subject to a 20% corporate income tax rate according to the source’s 2026 information.
Sole proprietors are treated differently. Their business earnings are taxed as personal income rather than through corporate income tax.
VAT
Iceland’s general VAT rate is 24%; however, some items and services—such as some food, lodging, literature, and tourism-related activities—are subject to a lower rate of 11%.
Once registered, businesses file VAT returns every two months according to the source.
Pension and Social Contributions
Employers have additional responsibilities beyond income tax.
The source states that employers, including self-employed people who pay themselves a salary, must contribute to social insurance and mandatory pension funds. Employer pension contributions are at least 11.5% of gross salary.
These costs should be included in your business budget from the beginning.
Keep Your Books and File Your Returns
Good bookkeeping is part of running a business in Iceland.
Businesses must maintain proper accounting records, while limited companies need to file annual financial statements with RSK.
The source estimates that many small businesses spend around 150,000 to 400,000 ISK per year on accounting and compliance, depending on how complicated the business is and how many transactions it handles.
For a foreign founder, hiring an accountant early can make life considerably easier.
Check for Industry-Specific Licences
Not every business needs a special operating licence, but many do.
The requirement depends on the industry rather than simply the type of company you register. Sectors mentioned in the source include food service and hospitality, healthcare, financial services, construction, tourism, and telecommunications.
For example, restaurants and hotels may deal with local health authorities, tourism businesses with the Icelandic Tourist Board, and financial businesses with the Financial Supervisory Authority.
Do not leave licensing until the last minute. Some approvals can take weeks or even months.
Find Support as an Entrepreneur
You do not necessarily have to build the business alone.
Iceland has a small but active startup community, and several organisations can help entrepreneurs with mentoring, networking, and business development.
Innovation Center Iceland offers business guidance and mentoring, including English-language resources aimed at foreign founders. Klak and the Icelandic Startup Community also organise events, meetups, and accelerator programmes.
Universities and regional development offices can provide additional support, particularly for founders working on innovation, research, funding applications, or businesses outside Reykjavík.
Practical Advice for Foreign Founders
Starting a company is one thing. Running it day after day is another.
Language is an important consideration. Company documents for an ehf must be in Icelandic, and much of the government communication is also in Icelandic. Working with a local accountant and lawyer can therefore save you a lot of time and confusion.
It is also important to understand the cost of employing people in Iceland. Pension contributions, holiday pay, sick leave, and employee rights all affect your real staffing costs.
And then there is the market itself.
Iceland has a relatively small population, so depending on your business, you may need to think internationally from the beginning. The source notes that word of mouth and reputation can carry a lot of weight in such a small market.
How Much Money Do You Need to Start?
Your budget will depend heavily on the type of company and business you are building.
For an ehf, the source estimates that you should be prepared to spend at least 1,000,000 to 1,500,000 ISK before generating revenue. This includes the minimum share capital, registration fee, legal and accounting setup, and initial operating costs.
That is a useful starting point, but businesses with employees, physical premises, equipment, or licensing requirements may need considerably more.
Conclusion
Starting a business in Iceland in 2026 can be a realistic option for both local and foreign entrepreneurs, but preparation matters.
For many founders, the ehf private limited company will be the most practical structure because it provides limited liability and is commonly used for businesses in Iceland.
From there, the process is mainly about getting the basics right: obtain your kennitala, prepare the documents, arrange the required capital, register through RSK, handle VAT and taxes, and check whether your industry requires a special licence.
Foreign founders should pay particular attention to the Icelandic-language requirements, accounting, employment costs, and immigration rules that apply to their situation.
Iceland’s market may be small, but it is well connected and has an active business and startup community. With a solid plan and the right local support, you can turn a business idea into a company that has room to grow.
FAQ
Can a foreigner start a business in Iceland?
Yes, while non-EEA nationals often require the necessary residency permission, EEA and EFTA residents are able to launch a business without a particular work authorisation. To register a business, a kennitala is also necessary.
What is the best business structure in Iceland?
An ehf, or private limited corporation, is a sensible option for many international business owners. It is popular among Icelandic firms and provides limited liability.
How long does it take to register a business in Iceland?
An ehf can usually be registered in around 3 to 5 working days when submitted electronically, and all requirements are met. Other structures may take longer.
What taxes does a business pay in Iceland?
An ehf or other limited company pays 20% corporate income tax according to the 2026 information in the source. VAT is generally 24%, with a reduced 11% rate for certain goods and services.
Do I need an Icelandic ID number to start a business?
Yes. You need a kennitala before registering a business in Iceland. It is used as an important identification number for business and administrative purposes.
Do I need to speak Icelandic to run a business?
Not necessarily for everyday business, but the source notes that ehf company documents must be in Icelandic, and much government communication is also in Icelandic. Many foreign founders therefore use local accountants or lawyers.
Is Iceland a good place to start a small business?
Iceland can be a good option for entrepreneurs who value a stable business environment and an active startup community. However, the relatively small domestic market means some businesses may need to target customers internationally.
Should I hire an accountant in Iceland?
For a foreign founder, having a local accountant can be very helpful. Tax returns, VAT, payroll.
