Iceland is an island country located between North America and Europe in the Atlantic Ocean, near the Arctic Circle. Until recently, U.S. investment in Iceland has mostly been centered in the aluminum sector, with Alcoa and Century Aluminum operating plants thanks to Iceland’s abundant geothermal energy. However, with the rise of tourism, U.S. portfolio investments in Iceland have been steadily increasing in recent years with investments in diverse sectors including hotel chains, consumer goods, and retail. Several U.S. brands and franchises have entered the Icelandic market in recent years including Costco, Hard Rock Cafe, KFC/Taco Bell, and Levi’s. U.S.-based Carpenter & Company is in the process of constructing the first 5-star hotel in Reykjavik, which will be operated by Marriott.
Iceland’s economy entered a period of uncertainty with the sudden collapse of Icelandic airline WOW Air in March 2019, which carried approximately 33 percent of Iceland’s air passengers. While the full effects on Iceland’s important tourism sector are still unknown, it is likely that tourism will drop, leading to a contraction of the Icelandic economy. But Iceland’s recent lifting of all remaining capital controls that had been put in place in the aftermath of the 2008 financial crisis will facilitate currency flows in and out of the country and should help provide a cushion. Iceland’s convenient location between the United States and Europe, high levels of education and English proficiency, as well as general interest in U.S. products makes it a promising market for U.S. companies.
Aside from tourism, Iceland’s data center and technology sectors have been some of the fastest growing areas of the Icelandic economy. Iceland has a small but vibrant tech scene creating innovative solutions in gaming, biotech, fintech, tourism, and the fishing industry. Iceland also boasts relatively inexpensive renewable energy, making it an increasingly attractive location for data centers, with most of these facilities focusing on cryptocurrency activities.
The economic environment of Iceland has been characterized by low inflation and healthy economic growth since 2012, reaching its peak of 6.6 percent in 2016. In 2019, with the recent struggles of the predominant tourism industry, GDP is forecasted to contract to -1.9 percent. GDP amounted to approximately USD 23, 9 billion in 2017.
Iceland has been experiencing a very low unemployment rate at around 2.3 percent, however this is expected to rise in the aftermath of the WOW bankruptcy. Iceland is a member of the European Economic Area (EEA), which allows for the open immigration of residents from other EEA countries. In 2018, around 18 percent of the workforce in Iceland were foreign citizens.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||14 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2018||21 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||23 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||N/A||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2018||$60,830||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
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 ( ), 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: .
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
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.
Businesses are registered with the Internal Revenue Service in Iceland ( ). 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 (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 ( ), are free of charge to all potential foreign investors. Invest in Iceland has also listed its page on establishing a business in Iceland ( ) on the Global Entrepreneurship Network’s Global Enterprise Registration website ( ). Its sister agencies, Promote Iceland ( ) and Film in Iceland ( ), 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.
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 ( ). 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.
2. Bilateral Investment Agreements and Taxation Treaties
Bilateral Investment Treaties & Free Trade Agreements
The United States does not share either a bilateral investment treaty (BIT) or a free trade agreement (FTA) with Iceland, although the two parties signed a Trade and Investment Framework Agreement (TIFA) in January 2009. Iceland has signed BITs with Chile, China, Egypt, India, Latvia, Lithuania, Mexico and Vietnam. Iceland and China signed an FTA in 2013 that came into force the following year.
Iceland is a member of the European Free Trade Association (EFTA), and therefore has access to the Norwegian, Swiss, and Liechtenstein markets, as well as the EU market through the EEA Agreement. The 1994 EEA agreement unites the EFTA and EU member states into one single market with free movement of goods, capital, services and persons. The agreement further stipulates tariff-free trade of industrial products that originate from countries that are part of the agreement, and reduced or eliminated tariffs, on processed agricultural products and seafood. Iceland has a bilateral agreement with the EU dating back to 1972 on reduced or eliminated tariffs on Icelandic seafood exported to the EU.
On May 1, 2018, an agreement came into force between Iceland and the EU concerning reduced or eliminated tariffs, and increased tariff quotas on unprocessed agricultural products. As part of this agreement, Iceland dropped tariffs on more than 340 categories of unprocessed agricultural products, and reduced tariffs on more than 20 categories. This will leave U.S. agricultural products exported to Iceland relatively (up to 30 percent) more expensive than products from the EU.
Iceland is also bound by Free Trade Agreements (FTA) with the following countries through its membership in EFTA: Albania, Bosnia Herzegovina, Chile, Egypt, Georgia, Hong Kong, Israel, Jordan, Canada, Columbia, Lebanon, Macedonia, Morocco, Mexico, Costa Rica, Guatemala, Panama, Peru, State of Palestine, Singapore, Serbia, South Korea, Montenegro, South African Customs Union (SACU), Gulf Cooperation Council (GCC), Tunis, Turkey, and Ukraine.
Bilateral Taxation Treaties
The United States and Iceland share a double taxation treaty. An intergovernmental agreement implementing the U.S. Foreign Account Tax Compliance Act (FATCA) in Iceland was signed in 2015. The FATCA IGA fights tax evasion and fraud by requiring that bank account holdings of American citizens be reported to the U.S. Internal Revenue Service. The United States and Iceland signed an “Agreement on Social Security between the United States of America and Iceland” and the accompanying “Administrative Arrangement between the Competent Authorities of the United States of America and Iceland for the Implementation of the Agreement on Social Security between the United States of America and Iceland” (collectively the “Agreements”) in 2016, that took effect on March 1st 2019.
3. Legal Regime
Transparency of the Regulatory System
Icelandic laws regulating business practices are consistent with those of most OECD member states. Iceland’s laws are increasingly based on European Union directives as a result of Iceland’s membership in the European Economic Area (EEA), which legally obligates it to implement EU directives and law concerning the four freedoms of the EU: free movement of goods, services, persons, and capital. Because much of Iceland’s financial regulatory system was put in place only in the 1990s, transparency is occasionally a concern (i.e. in public procurement, and in privatization sales where the process is established by the government on an ad hoc basis). In response to the financial crisis of 2008, the government is working to improve its regulatory role in the financial sector.
The Competition Authority is responsible for enforcing anti-monopoly regulations and promoting effective competition in business activities. This includes eliminating unreasonable barriers and restrictions on freedom in business operations, preventing monopolies and limitations on competition, and facilitating new competitors’ access to the market. The Consumer Agency holds primary responsibility for market surveillance of business operators, transparency of the markets with respect to safety and consumers’ legal rights, and enforcement of legislation concerning protection of consumers’ health, legal, and economic rights.
The system as a whole is transparent, although bureaucratic delays can occur. All proposed laws and regulations are published in draft form for the public record and are open for comment.
The Icelandic Parliament (Althingi) consists of a single chamber of 63 members; a simple majority is required for ordinary bills to become law. All bills are introduced in Parliament in draft form. Draft laws and regulations are open to public comment and are published in full on Parliament’s web page: and on the websites of the relevant ministries (often in English). Invest in Iceland also maintains an information portal website that includes information on industry sectors, the business climate, and incentives that foreign investors may find useful .
Ministries or regulatory agencies generally employ public consultation when developing regulations, although they are not legally required to do so. The text of such proposed regulations are published on a unified website . However, there is no legal obligation to publish the text of proposed regulations before their enactment, nor is there a period of time set by law for the proposed regulations to be publicly available. There is an obligation for regulators to consider alternatives to proposed regulations, but the rulemaking body is not required by law to do so. Laws and regulations are published on both the parliament’s website and separate website managed by the Ministry of Justice .
Public finance in Iceland is quite transparent, where Statistics Iceland compiles and publishes quarterly an overview of the annual federal, and local government statistics, based on the ESA2010 and the ESA2010 Manual on Government Deficit and Debt. For further information please visit the Statistics Iceland website:
International Regulatory Considerations
Icelandic laws regulating business practices are generally consistent with those of most OECD members. Iceland’s laws are increasingly based on EU directives as a result of Iceland’s membership in the EEA, which legally obligates it to implement EU directives and law concerning four freedoms of the EU: free movement, goods, services, persons, and capital. Transparency is occasionally a concern (e.g. in public procurement and privatization sales where the process is established on an ad hoc basis).
Iceland has been a member of the World Trade Organization (WTO) since January 1, 1995.
Iceland and the United States signed a Trade and Investment Framework Agreement (TIFA) in January 2009.
Legal System and Judicial Independence
The Icelandic civil law system enforces property rights, contractual rights, and the means to protect these rights. The Icelandic court system is independent from Parliament and government. Foreign parties must abide by the same rules as Icelandic parties, and they enjoy the same privileges in court; there is no discrimination against foreign parties in the Icelandic court system. When trade or investment disputes are settled, the settlement is usually remitted in the local currency.
Under the Constitution, the courts may only pass sentences. Iceland has a three tier judicial system, consisting of eight District Courts (Heradsdomstolar), the Court of Appeal (Landsrettur), and the Supreme Court (Haestirettur Islands). All court actions commence at the District Courts, and conclusions can then be appealed to the Court of Appeal. In special cases the conclusions of the Court of Appeal can be referred to the Supreme Court. A new public agency, the Judicial Administration (Domstolasysla), along with the Court of Appeal (Landsrettur) began operating on January 1, 2018. There are 64 judges in Iceland, 42 in the District Courts, 15 in the Court of Appeal, and seven in the Supreme Court.
The Landsdomur is a special high court or impeachment court established in 1905 to handle cases where members of the Cabinet of Iceland are suspected of criminal behavior. The Landsdomur has 15 members — five supreme court justices, a district court president, a constitutional law professor, and eight people chosen by Parliament every six years. The court assembled for the first time in 2011 to prosecute a former Prime Minister for alleged gross misconduct in the events leading up to the 2008 financial crisis; he was found guilty of failing to hold regular cabinet meetings during the crisis, but was not convicted of gross misconduct.
Laws and Regulations on Foreign Direct Investment
Iceland has no automatic screening process for investments that trigger national security concerns, although bidders in privatization sales may have to go through a pre-qualification process to verify that the bidder has the financial strength to participate. Privatization auction procedures are often ad hoc and with deadlines. Potential U.S. bidders in privatization auctions need to follow the specific process closely. There are limitations on foreign ownership of land as well as companies in the energy sector and fisheries. Investors that intend to hold more than 10 percent shares (“active” shareholders) in financial institutions are subject to approval from the Financial Supervisory Authority ( ).
Icelandic laws regulating and protecting foreign investments are consistent with OECD and EU standards. As Iceland is a member of the EEA, most EU commercial legislation and directives are in effect in Iceland. 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 EEA (including U.S. citizens). The law dictates that foreign ownership of businesses is generally unrestricted, except for limits in the fishing, energy, and aviation sectors. However, there are precedents of such restrictions being circumvented by non-EEA companies that establish holding companies within the EEA. The managers and the majority of the board of directors in an Icelandic enterprise must be domiciled in Iceland or another EEA member state, although exemptions from this provision can be granted by the Ministry of Justice.
Icelandic law also restricts the ability of non- EEA citizens to own land, but the Ministry of Justice may waive this. Foreigners currently own only 1.33 percent of total registered land in Iceland either fully or partially.
The government has a stated desire to attract FDI in certain priority sectors and has pledged to implement new policies to facilitate such investment. The Act on Incentives for Initial Investments ( ) came into force in 2015 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. The capital controls imposed in 2008 that had been the main hindrance to foreign investment in Iceland were fully lifted in March 2019.
Competition and Anti-Trust Laws
Competition Law No. 44/2205 is currently in place to promote competition and to prevent unreasonable barriers on economic operations. The Icelandic Competition Authority is notified of mergers and acquisitions above a certain threshold for size of companies involved. The Authority may annul mergers or set conditions to prevent monopolies and limitations on competition.
Expropriation and Compensation
The Constitution of Iceland stipulates that no one may be obliged to surrender their property unless required by the government to serve a public interest, and that such a measure shall be provided for by law and full compensation be paid. A special committee is appointed every five years to review and proclaim the legality of expropriation cases. If the committee proclaims a case to be legal, it will negotiate an amount of compensation with the appropriate parties. If an amount cannot be agreed upon, the committee determines a fair value after hearing the case of all parties.
As far as the U.S. Embassy is aware, the Icelandic government has never expropriated a foreign investment. However, some private investors described actions by the Icelandic government before and during the October 2008 financial crisis (related to the takeover of three major banks) as a type of indirect expropriation.
ICSID Convention and New York Convention
Iceland has ratified the major international conventions governing arbitration and the settlement of investment disputes. Iceland accepts binding arbitration of investment disputes.
Iceland is a member of the World Bank-based International Centre for the Settlement of Investment Disputes (ICSID, based on the Washington Convention), as well as a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
Investor-State Dispute Settlement
Investment disputes involving foreign investors are rare in Iceland; the Embassy is aware of no such cases in the past decade. Economic Surveillance Authorities under the EFTA agreement have ruled that the 2008 emergency laws put in place when the Icelandic banking sector collapsed were legal. The U.S. Embassy is unaware of any other cases of major investment disputes involving foreign investors in Iceland.
There was a public dispute in 2016 and 2017 between hedge funds based in the United States and UK and the Icelandic Government concerning offshore krona owned by these hedge funds. The hedge funds had purchased Icelandic krona at favorable rates in the aftermath of the economic collapse in 2008, and when the krona started to appreciate again, the offshore krona holders were unable to exchange their Icelandic krona due to capital controls that were placed in Iceland after the crash. These hedge funds filed a case against the Government of Iceland at the EFTA courts, but later dropped the case.
International Commercial Arbitration and Foreign Courts
The Iceland Chamber of Commerce operates an independent arbitration institute, called the Nordic Arbitration Centre (NAC). The awards of the Arbitral Tribunals are final and binding for the parties. Furthermore, due to Iceland´s ratification of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards the Tribunals awards are enforceable in over 144 countries. For more information .
The Bankruptcy Act of 1991, No. 21, applies to a debtor who has a social security number and is domiciled in Iceland. The debtor can be a person, a company or an institution. The debtor has to apply for a license of financial reorganization or for composition with creditors. The cost of the license is roughly USD 1,925. In the case of a registered company, its registered domicile must be in Iceland. If the company is unregistered, then its venue must also be in Iceland according to its articles of establishment. The same applies to institutions.
Bankruptcy is not criminalized in Iceland. In the case of resolving insolvency, Iceland ranks 21 out of 190 economies by the World Bank´s 2018 Doing Business Index.
4. Industrial Policies
Iceland has traditionally welcomed FDI in energy intensive industrial sectors such as aluminum smelting and has recently increased its focus on silicon production and data centers. The 2015 Act on Incentives for Initial Investments ( /) was implemented to “promote initial investment in commercial operations, the competitiveness of Iceland and regional development by specifying what incentives are permitted in respect to initial investments in Iceland and how they should be used.”
There is significant debate regarding the appropriate types and level of FDI in Iceland, particularly within the energy sector and with regard to job creation and the environmental impact associated with certain projects.
Subsidiaries of foreign companies are able to participate in government-subsidized research and development programs, but only to cover R&D costs that are borne in Iceland. For further information see . For more information on incentives, visit Invest in Iceland’s website .
The Icelandic government operates a State Guarantee fund, the role of the fund is to prepare, grant and process state guarantees. The fund grants state guarantees to Icelandic companies in joint foreign direct investment projects. For more information on the regulation surrounding the Fund visit their website
Foreign Trade Zones/Free Ports/Trade Facilitation
Under the EEA agreement, free ports or foreign trade zones are not allowed in Iceland.
Performance and Data Localization Requirements
Specific performance requirements have not been imposed on data centers and there are no other specific impediments to such projects, such as requiring them to be located in specific areas or to allow government access to data for surveillance purposes. In fact, Invest in Iceland has been actively trying to attract data companies to locate data centers in Iceland. Furthermore, Iceland has no data localization requirements. Iceland’s parliament is currently working to pass legislation to bring Iceland into compliance with the EU’s General Data Protection Regulation (GDPR). For more information, see the Invest in Iceland webpage: .
Iceland is a member of the EEA, allowing residents from any EEA country to work in Iceland. For residents of third countries, a resident permit is required for anyone staying in Iceland for more than three months. Please see the Icelandic Directory of Immigration web page for further information: .
5. Protection of Property Rights
Only Icelandic citizens and foreign citizens that have permanent residency in Iceland can acquire the right to own or use real property in Iceland, including fishing and hunting rights, water rights, or other real property rights, whether by free assignation or enforcement measures, marriage, inheritance, or deed of transfer. However, special rules apply for citizens of the EEA. The Minister of Justice may grant exemption from these conditions based on application showing the need of ownership for business activities. The Minister’s permission is not necessary if hiring real property for less than three years or when the party involved enjoys rights in Iceland under the rules of the EEA. For more information please look at the Act on the Right of Ownership and Use of Real Property ( ).
Property rights are generally enforced in Iceland. There is good access to mortgages and other financing to purchase real property in Iceland from commercial banks, pension funds and private lenders.
Intellectual Property Rights
Iceland adheres to key international agreements on intellectual property rights (IPR) (e.g., Paris Union Convention for the Protection of Industrial Property). Trademarks, copyrights, trade secrets and industrial designs are all protected under Icelandic law. As with many other issues, Iceland follows the European lead in protection of IPR and adheres to the European Patent Convention of 1973. In 2005, Iceland signed the Patent Cooperation Treaty (PCT).
As a member of the European Economic Area (EEA), Iceland accepts jurisdiction of the EEA Court. IPR is recognized and protected in the Constitution of Iceland. Secured interests in property are bound by law, and enforced as such, and there is a reliable system which records such security interests.
The Icelandic Patent Office, a government agency under supervision of the Ministry of Education, Science and Culture, handles all patent disputes in Iceland. The legal framework concerning IPR in Iceland is in all respects equivalent to that of other industrialized countries in Europe. Iceland is a World Trade Organization (WTO) member, and Icelandic legislation complies with WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) requirements. Iceland does not maintain a database on the number and types of seizures of counterfeit goods, but there is a website where rights holders, customs officials, and other stakeholders can report suspected goods. It is illegal to resell counterfeit goods, but it is not illegal for individuals to buy and import them for their own consumption. There has, however, been a recent crackdown on counterfeit goods in public offices.
Illegal downloading and distribution of films and TV shows is common in Iceland, but few have been prosecuted so far. Popular streaming and infringing websites have servers located in Iceland according to the 2018 Notorious Markets List. It is becoming increasingly popular in Iceland to purchase counterfeit consumer goods on Chinese websites, such as AliExpress.com, but again, prosecutions are rare. Customs seize counterfeit products if found and contact the owner of the intellectual property who then decides whether to press charges against the importer or not. If the owner of the intellectual property does not want to take legal actions, Customs clear the items and send them to the importer.
As an EFTA state and member of the EEA, Iceland has implemented all relevant EU regulations and directives in the field of IPR. Iceland is also bound by bilateral EFTA free-trade agreements which include provisions on IPR.
Iceland is not listed in the United States Trade Representative (USTR) 2019 Special 301 Report.
Iceland is a member of the European Patent Organization, the World Intellectual Property Organization (WIPO), and a party to most WIPO-administered agreements. For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .
6. Financial Sector
Capital Markets and Portfolio Investment
The Capital controls that were put in place in 2008 were fully lifted in March 2019. Only three exceptions remain: 1) Cross-border transfers of domestic currency due to transactions with offshore króna assets (that are subject to special restrictions pursuant to the Act on the Treatment of Króna-Denominated Assets Subject to Special Restrictions, no. 37/2016); 2) foreign exchange transactions carried out between residents and non-residents without the intermediation of a financial institution, (if domestic currency is a constituent of the transaction); and 3) derivatives transactions involving domestic currency against foreign currency and undertaken for purposes other than hedging against risk or hedging in connection with foreign issuance of króna-denominated bonds (glacier bonds). All other controls have been eliminated, including the Rules on the Special Reserve Requirements.
The estates of the former banks, after completing composition agreement with the Icelandic government in February 2016, have been transformed into holding companies. The creditors of the estates have taken full possession after agreeing to pay a stability contribution amounting to USD 3 billion to the government of Iceland to safeguard financial stability. The estates have now started distributing assets to creditors.
Foreign portfolio investment has increased significantly over the past two years in Iceland after being dormant in the years following the economic crash. The Icelandic Stock Exchange operates under the name NASDAQ Iceland or ICEX. For more information about companies listed on NASDAQ Iceland follow this link . Icelandic pension funds and foreign investors often finance large-scale projects as access to capital in Iceland can be limited. Foreign Direct Investment is actively encouraged by Icelandic authorities; for more information about market opportunities and incentives visit Invest in Iceland’s website .
Money and Banking System
The Central Bank of Iceland was established in 1961 by an act of Parliament. The Central Bank of Iceland promotes price stability, maintains international reserves, and promotes efficient financial system, including cross-border and domestic payment systems. For more information see the Central Bank of Iceland’s website .
There are three commercial banks in Iceland: Landsbankinn with assets of USD 11,211 million, Arion Bank with assets of USD 9,843 million, and Islandsbanki with assets of USD 9, 55 million. There is also one investment bank, Kvika, with USD 746 million in assets. All companies have access to regular commercial banking services in Iceland, although financing for large-scale investment projects usually comes from abroad. Pension funds are active in investing in and financing projects in Iceland.
Foreign banks are able to freely enter the Icelandic market, but should be aware of a ‘bank tax’ imposed on all banking institutions. Currently two banks, Landsbankinn and Islandsbanki, are State-owned enterprises with plans for privatization in the coming years. Purchase of these bank will be open to both domestic and foreign investors.
Establishing a bank account in Iceland requires a local personal identification number known as a “kennitala.” Foreign national should contact Registers Iceland for more information on how to register in Iceland ( ).
The Government of Iceland has not announced any plans to allow the implementation of blockchain technologies in its banking transactions. There are several data centers in Iceland that house blockchain operations.
Foreign Exchange and Remittances
Foreign Exchange Policies
Foreign exchange is freely available, based on the 1996 Act on Investment by Non-residents in Business Enterprises, which states that “non-residents who invest in Icelandic enterprises shall have the right to convert into any currency, for which the Central Bank of Iceland maintains a regular exchange rate, any dividends received or other profits and proceeds from sales of investments.” In 2008 the Central Bank of Iceland temporarily imposed capital controls to prevent a massive capital outflow following the collapse of the financial sector; those restrictions were fully lifted in March 2019. Transactions involving imports and exports of goods and services, travel, interest payments, contractual installment payments and salaries were always permitted, even under these capital controls.
The Central Bank published its Capital Controls Liberalization Strategy in 2009 and later updated it in 2011. The strategy lifted the controls in stages. The first step, permitting the inflow of foreign currency for new investments and the outflow of capital derived from such investments, was implemented in November 2009. The second step was to wind down the estates of the fallen banks, which occurred in February 2016 when all the estates of the failed banks agreed to the government plan for a stability contribution, in exchange for exemptions from capital controls.
Offshore krona held by funds which declined to participate in the previous auctions still remain outstanding. Entities holding such assets were given the option of exchanging them for a long-term bond in either EUR or ISK, or potentially offered another auction at the discretion of the Central Bank. In March 2019 the Central Bank lifted these restrictions and entities are now able to sell their offshore krona for other currencies and transfer the funds abroad.
In March 2017, the cabinet and the Central Bank lifted capital controls affecting households and businesses, involving “foreign exchange transactions, foreign investment, hedging, and lending activity, although some permanent protections against foreign exchange instability remained in place. These were lifted in March 2019. This liberalization is expected to help attract new investment to Iceland, and allow established Icelandic companies access to foreign currencies that they need to invest or expand abroad.
The Rules on Special Reserve Requirements for New Foreign Currency inflows were introduced in 2016 to restrict foreign investment in Icelandic bonds and bills. The rules state that those who invest in bonds or bills shall reserve 40 percent of the capital in a special reserve accounts within two weeks of the date the new inflows of foreign currency are converted to domestic currency or the reinvestment has taken place. The holding period is 12 months and capital flow accounts bear 0 percent interest. However, in March 2019 these rules were lifted. For more information see .
The Central Bank of Iceland publishes the official exchange rate on its website . “The exchange rate of the Icelandic krona is determined in the foreign exchange market, which is open between 9:15 hrs. and 16:00 hrs. on weekdays. Once a day, the Central Bank of Iceland fixes the official exchange rate of the krona against foreign currencies, for use as a reference in official agreements, court cases, and other contracts between parties that do not specify another reference exchange rate; cf. Article 19 of the Act on the Central Bank of Iceland, and fixes the official exchange rate index at the same time. This is done between 10:45 hrs. and 11:00 hrs. each morning that regulated foreign exchange markets are in operation. Under extraordinary circumstances, the Central Bank may temporarily suspend its quotation of the exchange rate of the krona.”
New foreign currency inflows that fall under Rule no. 490/2016 must be reported to the Central Bank through a local bank, for more information see the Central Bank of Iceland’s website . For further information on the Central Bank’s laws and rules on foreign exchange and capital inflow follow this link .
Iceland’s Financial Action Task Force (FATF) status is listed as monitored.
Sovereign Wealth Funds
Iceland does not have a Sovereign Wealth Fund.
7. State-Owned Enterprises
State-owned enterprises (SOEs) generally compete under the same terms and conditions as private enterprises, except in the energy production and distribution sector. SOEs are also most active in the banking, energy, and health sectors, and the state has a monopoly on retail alcohol sales. Private enterprises have the same access to financing as SOEs through the banking system. Notable SOEs include ATVR, the only company allowed to sell alcohol to the general public, Islandsbanki and Landsbankinn, two of three commercial banks in Iceland, and RUV, the Icelandic National Broadcasting Service.
As an OECD member, Iceland adheres to the OECD Guidelines on Corporate Governance. However, the Icelandic government has not implemented any standard guidance to embellish implementation and in some cases politicians sit on SOEs’ directorial boards. The Chamber of Commerce in Iceland and NASDAQ OMX have issued a set of guidelines that mirror the OECD Guidelines on Corporate Governance. The State Auditor has also issued a less comprehensive set of guidelines.
The line of command can become blurred between a Minister, the board of the SOE, and the head of the SOE when the head of an SOE is appointed or engaged by the Minister with purview over the sector in which the SOE operates. Often these positions are filled by political appointees who are sometimes former politicians. For SOEs operating amongst 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. In late 2009, the creditors of two of the three largest failed banks acquired the majority of shares in two of the newly re-established commercial banks, one of which in 2016 transferred shares back to the Icelandic state as part of the stability payment necessary to qualify for capital control exemptions. The Icelandic government owns 98 percent of the third re-established commercial bank, Landsbanki, and most of the government’s cost associated with recapitalizing the banking system lies within this bank. The government has stated its intention to privatize Landsbanki and Islandsbanki, but a timeline for privatization has not been announced. The Bank Shares Management Company, established by the state in 2009, manages state-owned shares in financial companies.
The government of Iceland has acquired a considerable stake in many companies through its 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 H.S 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.
The State Alcohol and Tobacco Company of Iceland (ATVR), has exclusive rights for the retail sale of all alcoholic beverages. Importers and wholesale companies are privately run.
There has been public criticism of SOEs like ISAVIA (which runs the Keflavik International Airport) and how they have tendered retail space within the airport. Media discussion has focused on accusations of opacity in the tendering process. Companies that lost their space at the airport in 2015 are suing ISAVIA for the documents related to the last tender of retail space. The results are still pending.
Iceland is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).
There are no privatization programs in Iceland at the moment. However, the Icelandic State now owns two of the three largest commercial banks (Landsbankinn and Islandsbanki) and has stated that it intends to privatize both. The government has authorized the sale of a 30 percent stake in Landsbankinn to private investors. The terms and process of the sale have not yet been disclosed, but there is public pressure for the sale to be conducted in a transparent and non-discriminatory manner that allows all investors, including foreign, to bid on the stake.
8. Responsible Business Conduct
As an OECD member, Iceland adheres to the OECD Guidelines for Multinational Enterprises. The Ministry for Industries and Innovation 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.
The “Promote Iceland” agency has signed the United Nations’ Global Compact on responsible business conduct and pledges to promote discussion of the subject. In the aftermath of the 2008 financial collapse, Iceland’s main banks also strengthened their social charters. Reykjavik University runs a Center for Corporate Social Responsibility, and Iceland’s Ministry of Foreign Affairs participates in the Nordic Business Outreach effort to direct private sector resources for development purposes. A NGO affiliated with Transparency International is active in Iceland and is a voice against corruption and for RBC. There is a general awareness of corporate social responsibility among both producers and consumers.
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 2018, Iceland ranked 14th place out of 180 countries in Transparency International’s Corruption Perceptions Index Ranking.
The Group of States Against Corruption (GRECO) published its report on Iceland in April 2018. The key findings were concerns that Iceland currently has no dedicated government-wide policy plan on anti-corruption and that its existing agency and institution-specific codes of conduct are not sufficiently detailed and are often implemented in an ad hoc manner. The report also notes that the GOI does not have a dedicated entity responsible for preventing corruption, which is instead delegated to various offices across the government.
In the wake of the financial collapse in Iceland in 2008, a code of conduct was established and ratified for public employees in 2013. Iceland has signed the UN Convention against Corruption and is in the accession process. Iceland is a member of the OECD Convention on Combatting Bribery.
Resources to Report Corruption
Contact at government agency or agencies are responsible for combating corruption:
Ministry of Justice
Solvholsgata 7, 101 Reykjavik
Contact at “watchdog” organization:
Gagnsaei (Icelandic chapter of Transparency International)
10. Political and Security Environment
Politically motivated violence in Iceland is rare. Non-violent political protests in response to the 2008 financial crisis resulted in the dissolution of the government, the formation of a new coalition, and subsequently early elections in 2009. In early 2014, frustration among voters regarding the then-governing Progressive Party-Independence Party coalition government’s refusal to hold a referendum on EU accession led to the largest protests since the financial collapse; these protests did not include violence. Non-violent protests also led to a governmental reorganization and early elections, following the 2016 “Panama Papers” scandal. There have been individual cases of politically motivated vandalism of foreign holdings in recent years, directed primarily at the aluminum industry.
There has been political instability in Iceland for the past couple of years, with the coalition government of the Progressive and Independence Parties collapsing in 2016, and the coalition government of the Independence, Progressive and Bright Future parties collapsing a year later. The current coalition government of the Left Green, Progressive and Independence Parties has been in power since November 2017. This political unrest has not had major effects on the economy nor raised security concerns in Iceland.
11. Labor Policies and Practices
The labor force in Iceland is highly skilled and educated. In 2018 the workforce consisted of 206,600 people aged between 16 and 74 years old. Of these, 199,900 people were employed and 6,700 unemployed, with the unemployment rate of 3.3 percent (March 2019). In many sectors, the demand for labor exceeds supply, especially in unskilled / semi-skilled sectors such as tourism and construction, where foreign labor fills the majority. The EEA Agreement allows for the free movement of labor within the area. In 2018, 37,691 foreign nationals were registered on the labor market in Iceland, accounting for 18 percent of Iceland’s workforce. The bankruptcy of WOW Air in early 2019 is expected to impact unemployment levels.
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 approximately 85 percent of employees belonging to unions.
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.
The standard legal work week is 36-40 hours. The law requires that employers compensate work exceeding those hours. Most employees are paid for overtime or allowed time off in lieu of paid compensation. 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.
There are no restrictions on employers adjusting employment to respond to fluctuating market conditions. Employees are entitled to three-months of severance pay in the case layoffs. Labor laws do not differentiate between layoffs and terminations. All group layoffs must be reported to the Directorate of Labor. For further information, see the Directorate of Labor website ( ).
12. OPIC and Other Investment Insurance Programs
There are no current Overseas Private Investment Corporation (OPIC) operations in Iceland, as the per capita income is too high to qualify. Political risk insurance and project financing have traditionally been available on the local and international markets. Iceland is a member of the World Bank’s Multilateral Investment Guarantee Agency.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
 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).
 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 (March 2019).
 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 (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
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$10,516||100%||Total Outward||$5,859||100%|
|Luxembourg #1||$3,065||29%||Netherlands #1||$3,063||52%|
|Netherlands #2||$2,248||21%||United Kingdom #2||$723||12%|
|Switzerland #3||$2,121||20%||Brit Virgin Islands #35||$234||4%|
|Denmark #4||$491||5%||Faroe Islands #4||$208||4%|
|United Kingdom #5||$439||4%||Norway #5||$169||3%|
|“0” reflects amounts rounded to +/- USD 500,000.|
 All of the data is consistent with the data available at the Central Bank of Iceland. 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
|Portfolio Investment Assets6|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$11,534||100%||All Countries||$10,417||100%||All Countries||$1,117||100%|
|United States||$2,079||18%||United States||$1,770||17%||Germany||$244||22%|