Policies Towards Foreign Direct Investment

There is broad recognition within the Icelandic government that foreign direct investment (FDI) is a key contributor to the country’s economic revival since the 2008 financial collapse. There is a dire need to improve road infrastructure in Iceland, especially given the influx of tourists, and tenders for new transportation projects are expected to be announced over the coming months and years. Keflavik International Airport is planning a USD 1 billion expansion. Meanwhile, IT startups seeking investors are burgeoning, and foreign investors have expressed growing interest in Iceland’s retail sector and food sector. Foreign investment in the fisheries sector, however, remains restricted, especially when it comes to investing in fishing companies that possess transferable quotas.

While most energy producers are either owned by the state or municipalities, there is technically free competition in the energy market. That said, potential foreign investment in national security-sensitive sectors like energy is likely to be met with demands for Icelandic ownership, either formally or from the public.

As part of its investment promotion strategy, the Icelandic government operates a public-private agency called “Invest in Iceland” (www.invest.is) that facilitates foreign investment by providing information to potential investors and promotes investment incentives. The government has stated its desire to attract FDI in certain priority sectors and has pledged to draft new policies to facilitate such investment.

The Act on Incentives for Initial Investments, which came into force in 2015 (https://www.government.is/topics/business-and-industry/incentives-and-investment-agreements/  ), is intended to “promote initial investment in commercial operations, the competitiveness of Iceland and regional development by specifying what incentives are permitted in respect of initial investments in Iceland and how they should be used.” The Act does not apply to investments in airports, energy production, financial institutions, insurance operations or securities.

There is significant debate, however, regarding the appropriate types and level of FDI in Iceland, particularly within the energy sector, with regard to job creation, and the environmental impact associated with certain projects. That said, energy-intensive industries that take advantage of the country’s renewable energy resources, long dominated by aluminum smelting, have expanded to include silicon production plants and data centers. For further resources see: http://www.invest.is/doing-business/incentives-and-support  .

Limits on Foreign Control and Right to Private Ownership and Establishment

The major law governing foreign investment is the 1996 Act on Investment by Non-residents in Business Enterprises, which grants national treatment to non-residents of the European Economic Area (EEA), of which Iceland is a member. The law dictates that foreign ownership of businesses is generally unrestricted, except for the limits currently imposed in the fishing, energy, and aviation sectors. Only entities with at least 51 percent Icelandic ownership can hold fishing rights. Non-EEA residents cannot hold hydro- and geothermal power harnessing rights, cannot manufacture or distribute energy, and cannot own more than 49 percent of an aviation company.

Other Investment Policy Reviews

Iceland has been a World Trade Organization (WTO) member since 1995. Its last WTO Trade Policy Review was in 2012.  (http://www.wto.org/english/tratop_e/tpr_e/tp373_e.htm  ).

The review notes that exports have exceeded, and imports nearly recovered to pre-crisis levels in domestic currency terms. Overall, the structure of trade in goods has not changed significantly, remaining predominantly fish, fish products, and aluminum to members of the European Free Trade Association (EFTA). While Icelandic authorities have identified certain sectors where they believe Iceland has a competitive advantage, such as data processing, high tech development, and eco-tourism, investor confidence must first be restored to attract further investment in these areas.

The Organization for Economic Cooperation and Development (OECD) last conducted an economic survey of Iceland in 2017. http://www.oecd.org/eco/surveys/economic-survey-iceland.htm  

Business Facilitation

Businesses are registered with the Internal Revenue Service in Iceland (http://www.rsk.is/english/  ). There is currently no online business registration process; all applications need to be filed in paper to the business registrar. The forms are only in Icelandic, and it is therefore necessary for foreign businesses to contract a local representative to complete the paperwork. New business registration, which takes only a few business days to process, is the only hurdle to establishing a company in Iceland. The website of the Business Registry in Iceland is http://www.rsk.is/fyrirtaekjaskra   (Icelandic only).

Ninety-nine percent of all companies registered in Iceland are micro-, small-, and medium- enterprises (MSME). About 90 percent of these are defined as micro-sized, meaning they have 10 or fewer employees. About 7 percent are defined as small enterprises (10-50 employees) and 2 percent are defined as medium sized (more than 250 employees).

The services offered by Invest in Iceland, an agency that promotes and facilitates foreign investment (www.invest.is  ), are free of charge to all potential foreign investors. Invest in Iceland has also listed its page on establishing a business in Iceland (http://www.invest.is/doing-business/establishing-a-company  ) on the Global Entrepreneurship Network’s Global Enterprise Registration website (https://ger.co/  ). Its sister agencies, Promote Iceland (http://www.islandsstofa.is  ) and Film in Iceland (http://www.filminiceland.com  ), aim to enhance Iceland’s reputation as a tourist destination and as a destination for filming theatrical and television productions.

According to the World Bank’s Doing Business Index, Iceland ranks 59 out of 190 economies on the ease of starting a business.

Outward Investment

The Icelandic Government, along with other stakeholders, promotes exports of Icelandic goods and services through the public-private agency Islandsstofa, also known as Promote Iceland (https://www.islandsstofa.is/en  ). Promote Iceland helps Icelandic businesses in the main industry sectors export their products and services, including fisheries (seafood and technology), agricultural produce (including organic lamb meat), high-tech products and solutions (software, prosthetics, etc.), and services (tourism). Promote Iceland has been very active in the United States and Canada in recent years, which has probably contributed to the dramatic increase in tourists from these countries and to increased exports to the United States during the same period. A trade commissioner represents the Ministry of Foreign Affairs in New York, facilitating exports to the United States and promoting business relations between the two countries. Promote Iceland also promotes exports to the U.K. and the rest of EU member states, and more recently to Asia (China and Japan).

After the economic collapse in late 2008, capital controls were imposed that significantly restricted the flow of capital in and out of Iceland. Capital controls were fully lifted in March 2019, which should further facilitate currency flows.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

[1] Gross Domestic Product in Iceland 2017 2,616,825 million ISK or 24,507 million USD using the average exchange rate of 2017 1 USD=106, 78 ISK. Source: https://statice.is/ (April 2019).

[2] Foreign Direct Investment Stocks in Iceland 2017 23,788 million ISK or 223 million USD using the average exchange rate of 2017 1 USD=106,78 ISK. Source: Central Bank of Iceland https://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5  (March 2019).

[3] Icelandic Foreign Direct Investment position in the United States 2017 3,805 million ISK or 35, 6 million USD using the average exchange rate of 2017 1 USD=106, 78 ISK. Source: Central Bank of Iceland https://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5   (March 2019).

[4] Total Foreign Direct Investment Stocks in Iceland 2017 1,057,768 million ISK or 9,906 million USD using the average exchange rate of 2017 1 USD=106,78 ISK. Source: Central Bank of Iceland https://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5   (March 2019). Gross Domestic Product in Iceland 2017 2,616,825 million ISK or 24,507 million USD using the average exchange rate of 2017 1 USD=106, 78 ISK. Source: https://statice.is/ (March 2019).

Table 3: Sources and Destination of FDI

[5] All of the data is consistent with the data available at the Central Bank of Iceland. https://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5   Except Outward Direct Investment towards Brit Virgin Islands, which is next to nothing the Central Bank of Iceland published data, Brit Virgin Island are considered a tax haven.

Table 4: Sources of Portfolio Investment

[6] Source: IMF http://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&sId=1481568994271   (June 2018)