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Iceland

Executive Summary

Iceland is an island country located between North America and Europe in the Atlantic Ocean, near the Arctic Circle with an advanced economy that centers around three primary sectors: fisheries, tourism, and aluminum production. Until recently, U.S. investment in Iceland has mostly been concentrated in the aluminum sector, with Alcoa and Century Aluminum operating plants in Iceland. However, U.S. portfolio investments in Iceland have been steadily increasing in recent years. Iceland’s convenient location between the United States and Europe, its high levels of education, connectivity, and English proficiency, and a general appreciation for U.S. products make Iceland a promising market for U.S. companies. Furthermore, Americans made up a third of the tourist population that visited Iceland in 2021.

There is broad recognition within the Icelandic government that foreign direct investment (FDI) is a key contributor to the country’s economic revival after the 2008 financial collapse. As part of its investment promotion strategy, the Icelandic government operates a public-private agency called “Invest in Iceland” that facilitates foreign investment by providing information to potential investors and promoting investment incentives. Iceland has identified the following “key sectors” in Iceland; tourism; algae culture; data centers; and life sciences. Iceland offers incentives to foreign investors in certain industries.

Tourism has been a growing force behind Iceland’s economy in the past decade, with opportunities for investors in high-end tourism, including luxury resorts and hotels. The number of tourists in Iceland grew by more than 400 percent between 2010 and 2018, reaching more than 2.3 million in 2018. However, tourism in Iceland contracted in 2019, and the COVID-19 pandemic has had drastic effects on tourism, and the overall economy. The government implemented measures to bolster the tourism economy, thus avoiding mass bankruptcies in the sector, and has committed to building out tourism-related infrastructure.

The startup and innovation communities in Iceland are flourishing, with the IT and biotech sectors growing fast, particularly pharmaceuticals and wellness, gaming, and aquaculture. Iceland’s IT sector spans all areas of the digital economy. The Icelandic energy grid derives 99 percent of its power from renewable resources, making it uniquely attractive for energy-dependent industries. For instance, the data center industry in Iceland is expanding.

Iceland is working by the 2018 Climate Acton Plan, which was updated in 2020, and is designed to achieve Iceland’s national climate goals of making the country carbon neutral by 2040 and to cut greenhouse gas emissions by 40 percent by 2030 under the Paris Agreement.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 13 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 17 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $796 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $62,420 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

7. State-Owned Enterprises

The Icelandic Government owns wholly or majority shares in 40 companies, including systematically important companies such as energy companies, the Icelandic National Broadcasting Service (RUV) and Iceland Post. Other notable SOEs are Landsbankinn (one of three commercial banks in Iceland), Isavia (public company that operates Keflavik International Airport), and ATVR (the only company allowed to sell alcohol to the general public). Here you can find a list of SOEs ( https://www.stjornarradid.is/verkefni/rekstur-og-eignir-rikisins/felog-i-eigu-rikisins/ ). Total assets of SOEs in 2020 amounted to 5,735 billion ISK (approx. $44.3 billion) and SOEs employed around 5,100 people that same year. In terms of assets and equity, Landsbankinn (one of three commercial banks in Iceland) is the largest SOE in Iceland, and Isavia employs the most people.

State-owned enterprises (SOEs) generally compete under the same terms and conditions as private enterprises, except in the energy production and distribution sector. Private enterprises have similar access to financing as SOEs through the banking system.

As an OECD member, Iceland adheres to the OECD Guidelines on Corporate Governance. The Iceland Chamber of Commerce in Iceland, NASDAQ OMX Iceland and the Confederation of Icelandic Employers have issued guidelines that mirror the OECD Guidelines on Corporate Governance. Iceland is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).

For SOEs operating within the private sector in a competitive environment, the general guideline from the Icelandic government is that all decisions of the board of the SOE should ensure a level playing field and spur competition in the market.

In the midst of the banking crisis, the state, through the Financial Supervisory Authority (FME), took over Iceland’s three largest commercial banks, which collapsed in October 2008, and subsequently took over several savings banks to allow for uninterrupted banking services in the country. The government has started the privatization process of Islandsbanki, and currently owns 42.5 percent shares in the bank. The Bank Shares Management Company, established by the state in 2009, manages state-owned shares in financial companies.

The government of Iceland has acquired stakes in many companies through its ownership of shares in the banks; however, it is the policy of the government not to interfere with internal or day-to-day management decisions of these companies. Instead, in 2009, the state established the Bank Shares Management Company to manage the state-owned shares in financial companies. The board of this entity, consisting of individuals appointed by the Minister of Finance, appoints a selection committee, which in turn chooses the State representative to sit on the boards of the various companies.

While most energy producers are either owned by the state or municipalities, there is free competition in the energy market. That said, potential foreign investment in critical sectors like energy is likely to be met by demands for Icelandic ownership, either formally or from the public. For example, a Canadian company, Magma Energy, acquired a 95 percent stake in the energy production company HS Orka in 2010, but later sold a 33.4 percent stake to the Icelandic pension funds in the face of intense public pressure.

Iceland’s universal healthcare system is mainly state-operated. However, few legal restrictions to private medical practice exist; private clinics are required to maintain an agreement regarding payment for services with the Icelandic state, a foreign state, or an insurance company.

8. Responsible Business Conduct

As an OECD member, Iceland adheres to the OECD Guidelines for Multinational Enterprises. The Ministry for Culture and Business Affairs houses Iceland’s National Contact Point for the Guidelines, charged with promoting the due diligence approach of the Guidelines to the business community and to facilitate the resolution of any disputes arising in the context of the Guidelines ( https://www.stjornarradid.is/verkefni/atvinnuvegir/vidskipti/almenn-vidskiptamal/ ).

Business Iceland (formerly Promote Iceland), which is a public-private agency responsible for promoting Iceland’s export sectors abroad, has signed the United Nations’ Global Compact (GC) and raises awareness of corporate social responsibility in Iceland. Festa, a non-profit organization which promotes sustainable development and corporate social responsibility, has over 120 associated members, including some of Iceland’s largest companies, public organizations, universities, and municipalities ( www.samfelagsabyrgd.is/festa ). Gagnsaei, an NGO affiliated with Transparency International, is active in Iceland and is a voice against corruption ( www.transparency.is ). There is a general awareness of corporate social responsibility among producers, companies, and consumers.

There was a high-profile case in 2018 and 2019 surrounding a private employment agency which has now been declared bankrupt, that allegedly mistreated migrant Romanian workers by failing to pay salaries and provide housing as per agreement. This case caused outrage in Iceland and many union and workers’ association leaders voiced their concerns in the media and stated that mistreatment of workers would not be tolerated. The Directorate of Labor fined the company in 2019 for failing to register workers adequately.

As an OECD member state, Iceland adheres to the OECD Due Diligence Guidance recommendations to help companies respect human rights and avoid contributing to conflict through their mineral purchasing decisions and practices. The Icelandic economy does not have a mining industry, other than extracting rocks and gravel for construction purposes. In 2013, former Icelandic Prime Minister Sigmundur David Gunnlaugsson issued a joint statement with the other Nordic Prime Ministers to reaffirm their support to the Extractive Industry Transparency Initiative (EITI).

Department of State

Department of the Treasury

Department of Labor

9. Corruption

Isolated cases of corruption have been known to occur but are not an obstacle to foreign investment in Iceland or a recognized issue of concern in the government. In 2021 Iceland ranked 13 out of 180 economies on the Transparency International’s Corruption Perceptions Index. Iceland has signed the UN Convention against Corruption. Iceland is a member of the OECD Convention on Combatting Bribery.

The Council of Europe body Group of States Against Corruption (GRECO) published its fifth evaluation report on Iceland on April 12, 2018. GRECO found that Iceland had no dedicated government-wide policy plan on anti-corruption and that its agency and institution-specific codes of conduct were not sufficiently detailed and were often implemented in an ad hoc manner. For more information, see the GRECO report ( https://rm.coe.int/fifth-evaluation-round-preventing-corruption-and-promoting-integrity-i/16807b8218 ). The Icelandic Parliament introduced a new law in 2020 on measures against conflict of interests for ministers, assistance to ministers, director generals at ministries, and ambassadors, concerning receiving gifts, additional job positions, and supervision of the aforementioned law.

In the wake of the financial collapse in Iceland in 2008, a Code of Conduct for Staff in the Government Offices of Iceland was established in 2012, “with the purpose of promoting professional methods and of confidence in public administration.” The code of conduct addresses workplace relations and procedures; behavior and conduct; conflicts of interest and shared interests; communication with the media, public and surveillance bodies; and responsibility and monitoring for Government Offices staff. For more information see the Government of Iceland’s website ( https://www.government.is/ministries/prime-ministers-office/code-of-conduct-for-staff/ ). The code does not extend to family members of officials or political parties.

10. Political and Security Environment

Politically motivated violence in Iceland is rare, and Iceland consistently ranks among the world’s safest countries. The World Bank’s Worldwide Governance Indicator on Political Stability and Absence of Violence placed Iceland in the top 97th percentile rank of all countries worldwide in 2020 ( http://info.worldbank.org/governance/wgi/Home/Reports ). In early 2014, frustration among voters regarding the then-governing Progressive Party-Independence Party coalition government’s withdrawal of Iceland’s accession bid to the European Union led to the largest protests since the financial collapse; these protests did not include violence. Non-violent protests led to a governmental reorganization and early elections following the 2016 “Panama Papers” scandal. A subsequent government, composed of the Independence Party, Bright Future, and the Reform Party, took office in early 2017 and collapsed within a year. The current coalition government, composed of the Independence Party, Progressive Party, and the Left-Green Movement, assumed power in November 2017 and began its second term November 28, 2021.

There have been individual cases of politically motivated vandalism of foreign holdings in recent years, directed primarily at the aluminum industry.

11. Labor Policies and Practices

The labor force in Iceland is highly skilled and educated. The labor force consisted of 208,900 people aged between 16 and 74 years old at the end of 2021 according to Statistics Iceland. Of them, 199,700 people were employed and 9,200 unemployed at the end of 2021. According to Statistics Iceland, the unemployment rate was 4.4 percent in December 2021, while the Directorate of Labor reported 4.9 percent unemployment for the same month. Foreign labor plays a large role in unskilled and semi-skilled sectors such as tourism and construction. In December 2021, 38,000 immigrants were employed in Iceland, according to Statistics Iceland. Women in Iceland are almost on par with men when it comes to labor participation, with 77.2 percent of women being active on the job market, compared to 79 percent of men, according to Statistics Iceland. The Icelandic population is highly educated, with 33.3 percent of 16-to-74-year old’s having tertiary/university education.

Icelandic Labor Laws are taken seriously in Iceland, and there are no waivers to attract or retain investment. The labor unions and Directorate of Labor conduct spot inspections on worksites to monitor legal compliance. The labor market is highly unionized, with 91.9 percent of the workforce members of trade unions in 2020, according to Statistics Iceland.

Icelandic labor unions are decentralized and not politically affiliated. Collective bargaining power, in both the public and the private sectors, rests with individual labor unions. The law does not establish a minimum wage, but the minimum wages negotiated in collective bargaining agreements apply automatically to all employees in those occupations, including foreign workers, regardless of union membership. While the agreements can be either industry-wide, sector-wide, or in some cases firm-specific, the type of position defines the negotiated wage levels. The government has sometimes imposed mandatory mediation to avert or end strikes in key economic sectors such as healthcare or fisheries.

According to collective bargaining agreements, the standard work week is 37.5 hours, or 7.5 hours a day. Employees have the right to take a 15-minute paid break within the standard workday. Lunch, either 30 or 60 minutes, is then added to the standard workday. The law requires that employers compensate work exceeding eight hours per day as overtime. Collective bargaining agreements determine the terms of overtime pay, but they do not vary significantly across unions. The law limits the total hours a worker may work, including overtime, to 48 hours a week on average during each four-month period. Typical holiday and shift-work rates are 40 percent above the standard shift rate and may be up to 45 percent more if total work hours exceed full-time employment. The law entitles workers to 11 hours of rest in each 24-hour period and one full day off each week. Under specially defined circumstances, employers may reduce the 11-hour rest period to no fewer than eight hours, but they must then compensate workers with corresponding rest time later. They may also postpone a worker’s day off, but the worker must receive the corresponding rest time within 14 days.

Outside terminating an employee, employers are by law prohibited from making unilateral amendments to hiring contracts. Companies are mandated to report mass layoffs to the Directorate of Labor. Terminated employees retain the same rights to severance benefits regardless of whether they were part of a mass layoff or fired. For further information, see the Directorate of Labor website ( https://vinnumalastofnun.is/en ).

14. Contact for More Information

Ester Halldorsdottir
Economic and Commercial Specialist
U.S. Embassy
Engjateigur 7
105 Reykjavik
Iceland
+354 595-2200
Reykjavikeconomic@state.gov 

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