Starting a Company
Key information for people who would like to start their own company.
The Benefits of Starting a Company
When you carry out your operations as a company and not as an individual, you separate the obligations of the company from your own, as long as the company is operated on a separate national ID number. Shareholders are, however, liable for the company's obligation as is stipulated in corporate law.
The income for both private and public limited companies (ehf. and hf.) is taxed at a rate of 20%, while partnerships (sf.) and cooperative societies (slhf.) are taxed at 36%. Self-employed individuals, however, pay a tax rate of 36.94% in the lower bracket and 46.24% in the upper bracket.
Private and public limited companies pay taxes on their profits only, not all income. There are also taxes and fees levied on the wages they pay.
Am I eligible to start a company?
To start a company you must be at least 18 years old and legally competent. You must not be seeking or received a suspension of payments and you may not be in bankruptcy proceedings.
Certain kinds of operations require a special permit or license, which are, in most cases, regulated by the Administration of Occupational Safety and Health or other entity depending on the nature of the business.
What operational form of business suits you?
A sole proprietorship is registered on the owner's national ID number. The owner bears full and unconditional liability for all commitments entered into by the business. This form of business does not have any registration fee and carries no minimum share capital requirement.
A corporate entity is operated under its own independent national ID number. There are a number of differences between different types of corporate entities when it comes to liability, taxation, share capital, accounting rules and registration. The most common corporate entities are:
private limited company (ehf.)
public limited company (hf.)
cooperative society (slhf.)
self-governing corporate entity (slf.)
Naming Your Business
When starting a company you decide what the company will be called: the business name. You'll also need to submit information on the legal address and date the company was founded. This business name may not be too similar to the business names or brands of other existing companies.
Founding Expenses and Minimum Share Capital
Starting a company involves registration and various certificates, the costs of which are paid to Iceland Revenue and Customs.
When starting a private or public limited company, you must also demonstrate a minimum share capital. Those funds must either be placed in an account in the company's name or you must show certain assets with an assessed value equal to the amount.
Minimum share capital amounts depend on what kind of limited company you choose to start.
Documents Required When Forming a Company
When forming your company there are certain essential documents that must accompany our application. If you are applying online, you will submit this information as part of the process, but if you are submitting a paper application you'll need submit the following documents as well:
declaration of incorporation for a private limited company
articles of incorporation or memorandum of association
articles of association
the minutes from the initial meeting
Iceland Revenue and Customs offers more information on supporting documentation.
When employees are hired the employer/wage payer assumes certain obligations with regard to labor unions, pension funds and certain government organizations.
Employment contracts are often based on collective wage agreements, which stipulate certain basic terms and benefits, like wages, working hours and vacation. As an employer you are required to ensure that all workplace conditions are satisfactory and health and safety standards are met in collaboration with employees.
Companies that pay wages must be registered on the wage-payers registry with Iceland Revenue and Customs.
Accounting and Payment of Taxes & Fees
Companies are obligated to keep an accounting of their business, no matter the operational form. Companies are also obligated to report to the tax authorities and stay current on the payment of value-added taxes as necessary.
Companies must remit payroll taxes and other wage-related fees to the state, municipalities, labor unions and pension funds as necessary, as well as stay current on operational taxes and fees.
Value-added tax (VAT) is paid on all domestic transactions and when importing goods and services. The general VAT rate is 24%, but certain classes of goods and services are taxed at 11%.
Companies collect these taxes from consumers on behalf of the state and remit them to the state treasury. In this way companies are engaged in tax collection, but the VAT tax rate is listed on receipts for goods and services.
If the business you start involves VAT taxable goods or services, you will need to notify the relevant tax authority at least 8 days before the business commences. The company must obtain a VAT number before business commences.
Ef reksturinn sem verið er að stofna til er virðisaukaskattskyldur þarf að tilkynna það til viðkomandi skattstjóra 8 dögum áður en starfsemin hefst. Fyrirtækinu þarf að úthluta virðisaukaskattsnúmeri áður en starfsemi hefst.
Does your business need a permit or license?
Consider whether your business might engage in an activity that requires a license or some kind of registration.
Licensing can take different forms, like a tradesman or master tradesman certificate, authorization, certification, etc. These licenses are regulated by different bodies like municipalities, public health authority, district commissioners, the Tourist Board, Transport Authority and the Administration of Occupational Safety and Health. Agencies that regulate various activities include the Food and Veterinary Authority, Matís, the Administration of Occupational Safety and Health and the Transport Authority.