Executive Summary

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 in Iceland. However, the U.S. company Silicor Materials is currently in the process of establishing a USD 850 million photovoltaic silicon plant. Several U.S. brands and franchises have entered the Icelandic market recently, including Costco, Hard Rock Café and Krispy Kreme, and more are testing the waters. The transatlantic location of Iceland, coupled with high level of education and proficiency in English among the Icelandic population and general interest in U.S. products, make Iceland an ideal market for U.S. companies.

The booming tourism industry has grown by double digits in each of the last seven years. There is a shortage of hotel rooms, with the projected number of tourists to exceed 2.2 million in 2017. U.S.-based Carpenter & Company is currently constructing the first 5-star hotel in Reykjavik, which will be operated by the Marriott chain. There are additional investment opportunities in sectors that cater to tourists, as well as in the restaurant sector. A new consumer market is emerging along with the fast growing tourism sector, as the number of tourists in Iceland far exceeds the local population of 330,000. The number of U.S. tourists in Iceland grew by almost 60% between 2014 and 2015, and Americans are now the largest tourist population in Iceland, generating more demand for U.S. products.

Information Technology (IT) has also been one of the fastest growing sectors of the Icelandic economy. The Icelandic energy grid derives 100% of its power from geothermal and hydro resources, making it 100% renewable and uniquely attractive for energy-dependent industries. No other country in the world offers as reliable a power infrastructure, ideal climate for free cooling, or competitively priced energy via long-term contracts and scalable locations. Iceland’s IT sector spans all areas of the digital economy. In the last decade it has spawned an impressive array of export-driven IT companies. Data management systems, workflow systems, communications solutions, wireless data systems, palmtop systems, Internet solutions, e-commerce content and solutions, gaming, healthcare solutions and of course fisheries technology systems are all exported to overseas markets. IT exports from Iceland have grown over 60-fold since early 1990s.

The economic environment of Iceland has been characterized by low inflation and a healthy economic growth rate over the last few years (1.2 percent in 2012; 4.4 percent in 2013; 1.9 percent in 2014; 4.1 percent in 2015; and 7.2 percent in 2016). GDP amounted to approximately USD 22 billion in 2016, and GDP per capita was USD 59,724, using the current exchange rate.

The Icelandic government has taken the final steps to resolve the estates of the three banks that failed in the 2008 global financial crisis and to lift the subsequently imposed capital controls.

On March 12, 2017, the cabinet and the Central Bank announced that effective March 14, they would lift capital controls involving “foreign exchange transactions, foreign investment, hedging, and lending activity”. Some permanent prudential protections against foreign exchange instability will remain. This liberalization should help attract further investment to Iceland, and allow Icelandic companies the foreign exchange necessary to invest or expand abroad.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 14 of 176 http://www.transparency.org/
World Bank’s Doing Business Report “Ease of Doing Business” 2017 20 of 190 http://doingbusiness.org/rankings
Global Innovation Index 2016 13 of 128 https://www.globalinnovationindex.org/
U.S. FDI in partner country ($M USD, stock positions) 2015 N/A http://www.bea.gov/
World Bank GNI per capita 2015 50,140 USD http://data.worldbank.org/

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. Iceland’s growing tourism sector is expected to offer ample investment opportunities, but much work remains to identify investment-ready projects. There is dire need to improve road infrastructure in Iceland, especially given the influx of tourists, and tenders for new projects in road infrastructure are expected to be announced over the coming months and years. 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 free competition in the energy market. That said, potential foreign investment in critical sectors like energy is likely to meet with 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.

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 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://eng.atvinnuvegaraduneyti.is/invest-in-iceland/act-on-incentives/ ), 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 abundant and cheap renewable energy resources, long dominated by aluminum smelting, have expanded to include a silicon production plant and cloud storage servers. The government has signed investment agreements relating to two more silicon plants and is considering power purchase agreements and investment agreements also for an algae factory. The government has likewise started to address zoning issues that may open new areas for further expansion of electricity production in Iceland. 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 needs to be restored to attract further investment in these areas.

Iceland has not had an Investment Policy Review conducted by UN Cooperation for Trade and Development (UNCTAD) or the Organization for Economic Cooperation and Development (OECD).

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 that 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 (more information at http://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 (http://www.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.

Outward Investment

The Icelandic Government promotes exports of Icelandic goods and services through the public-private agency Islandsstofa (http://www.islandsstofa.is ). Islandsstofa 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). Islandsstofa 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 commisioner represents the Ministry of Foreign Affairs in New York, facilitating exports to the United States and promoting business relations between the two countries. Iceland‘s two airlines, Icelandair and Wow Air, have expanded their U.S. service offerings over the past few years, facilitating the export of Icelandic food products. Islandsstofa also promotes exports to the U.K., Northern and Southern Europe, and more recently to Asia (China and Japan).

Until March 2017, capital controls that significantly restricted outward investment were in place in Iceland. The capital controls, imposed following the economic collapse of Iceland‘s currency in late 2008, largely prevented Icelandic investors and pension funds from investing outside Iceland. The nearly full lifting of the controls on 14 March 2017 will likely result in increased outward investment, particularly from pension funds, which have been accumulating capital.

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 is a member of the European Free Trade Agreement (EFTA), and has therefore access to the EU, Norwegian, Swiss, and Liechtenstein markets. Iceland has signed some 35 bilateral investment treaties (BITs) and other treaties containing investment provisions; for a full list currently in force, see: http://investmentpolicyhub.unctad.org/IIA/CountryBits/95#iiaInnerMenu 

The United States and Iceland have a double taxation treaty. An intergovernmental agreement implementing the Foreign Account Tax Compliance Act (FATCA) in Iceland was signed May 26, 2015. Discussions between the United States and Iceland are ongoing to complete a Social Security Totalization Agreement, which would resolve the current requirement for individuals holding dual citizenship to pay into social security systems of both countries.

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 adopt 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 the parliament in draft form. Draft laws and regulations are open to public comment and are published in full on the parliament’s web page: http://www.stjornartidindi.is  and on the websites of the relevant ministries (often in English).

Iceland scores 4.6 out of 6 on the World Bank’s “Doing Business” Global Indicators of Regulatory Governance. Regulators are obligated by law to consider alternatives to the proposed regulation. 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 (http://www.invest.is).

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 adopt 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.

Iceland has a bilateral free trade agreement with China and is currently negotiating one with Japan.

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 the 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. The courts are generally divided into two classes: the eight lower courts, where most cases are heard, and the Supreme Court, which hears appeals from the lower courts. All of the courts hear both public and private cases. The Landsdómur 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 Landsdómur 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

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. Icelandic law also restricts the ability of non EEA-citizens to own land, but the Ministry of Interior may waive this. Foreigners own currently only 1.33 percent of total registered land in Iceland either fully or partially. 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 Interior.

There is no automatic screening process for foreign investors, 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 limitation on foreign ownership of land as well as companies in the energy sector and fisheries. Investors that intend to hold more than 10% shares (“active” shareholders) in financial institutions are subject to approval from the Financial Supervisory Authority (http://en.fme.is/ ).

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 (https://eng.atvinnuvegaraduneyti.is/invest-in-iceland/act-on-incentives/ ) 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 and lifted in March 2017 have been the main hindrance to foreign investment in Iceland.

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. Depending on the turnover of the companies in question, the Icelandic Competition Authority is notified of mergers and acquisitions. 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.

Dispute Settlement

Iceland has ratified the major international conventions governing arbitration and the settlement of investment disputes. Iceland accepts binding arbitration of investment disputes.

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.

Iceland is a member state to the International Centre for the Settlement of Investment Disputes (Washington Convention), as well as a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

Investment disputes involving foreign investors are rare in Iceland; the Embassy is aware of no such cases in the past decade.

Bankruptcy Regulations

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 US $1925. 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 number 19 out of 189 countries by the World Bank´s Doing Business Index.

Investment Incentives

Iceland has traditionally welcomed FDI in energy intensive industrial sectors such as aluminum smelting and has recently increased its focus on silicon production and cloud computing data storage projects. The government has pledged to draft new policies to facilitate such investment. The 2015 Act on Incentives for Initial Investments (https://eng.atvinnuvegaraduneyti.is/invest-in-iceland/act-on-incentives ) was implemented 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.”

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. The majority of past foreign investment has been in energy-intensive industries, such as aluminum smelting, that take advantage of the country’s abundant and cheap renewable energy resources.

In recent years, investment has shifted from aluminum smelting to silicon production. One silicon plant recently commenced operations and two more projects are underway. The government has signed investment agreements for both of those projects and is considering a power purchase agreement for a silicon metal factory, an investment agreement for an algae factory, as well as agreements for two additional silicon factories. The government has also started to address zoning issues that may open new areas for electricity production. For further information see http://www.invest.is/doing-business/incentives-and-support .

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 http://en.rannis.is .

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

Iceland has imposed stricter data privacy laws than those generally required by the EU. Nonetheless, specific performance requirements have not been imposed on data storage 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 storage companies to locate cloud computing storage centers in Iceland. For more information, see the Invest in Iceland webpage: http://www.invest.is/key-sectors/data-centers 

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: http://www.utl.is/index.php/en/ .

Real Property

Unless strict Icelandic citizenship and domicile conditions are met, nobody may 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. The Minister of Interior 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.

Intellectual Property Rights

Iceland adheres to key international agreements on property rights (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 property rights and adheres to the European Patent Convention of 1973. In 2005, Iceland signed the Patent Cooperation Treaty (PCT).

As a member of the EEA, Iceland accepts jurisdiction of the EEA Court. Property rights are 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. Iceland was not listed in either the Notorious Markets Report or the 2017 Special 301 Report.

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 intellectual property rights (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 of and seizures of counterfeit goods, but there is a website http://www.falsanir.is  where rights holders, customs officials, and other stakeholders can report suspected goods. It is illegal to resell counterfeit goods, but 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.

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 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 treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Capital controls were lifted in March 2017 after more than eight years of restricting the free movement of capital. Generally, foreigners are not big players in the Icelandic capital market, except for those investors or depositors who were blocked from moving their assets in the wake of the 2008 financial crisis. These foreign legacy investors usually invested in short term bonds and securities in Iceland’s biggest companies.

The estates of the former banks, after completing composition agreement with the Icelandic state 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 $3 billion USD to the Icelandic State to safeguard financial stability. The estates have now started distributing assets to creditors.

The OMX Nordic Exchange operates the market for securities in Iceland and trades various products. Activity has been limited since the crash, but the infrastructure is in place.

Money and Banking System

All companies have access to regular commercial banking services in Iceland, although financing for large-scale investment projects usually comes from abroad. Over the 12 month period from mid-2016 to mid-2017, the ISK had appreciated some 20%, from 126 ISK per U.S. dollar, to 106 in May 2017. The Central Bank of Iceland has often intervened in the market since the collapse by buying ISK, and those permitted to sell ISK under capital controls have been able to do so.

The combined assets of Iceland’s largest banks and seven savings and loan institutions amounted to roughly 1.52 times Iceland’s GDP in 2015. There are also a number of other smaller financial institutions active in Iceland. The tier one capital ratio of the three biggest banks is 25.3 percent. The Financial Supervisory Authority’s (FME) suggested capital adequacy requirement is 16 percent, but 8 percent is the mandated minimum. The four largest banks in Iceland met this requirement by June 2015. At the end of the second quarter 2015, nonperforming loans in the Icelandic banking system were 2.1 percent, down 0.9 percent since 2014. Iceland’s large financial institutions were leveraged at 5.35 times equity at the end of the second quarter 2013, a low ratio compared to international banks.

Hostile takeovers are rare in Iceland. If there were a case, the Competition Authorities would likely step in to block the deal if the takeover would result in a company holding too great a market share.

Establishing a bank account in Iceland requires a local personal identification number known as a “kennitala.”

Foreign Exchange and Remittances

The 1996 Act on Investment by Non-residents in Business Enterprises 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, however, 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 largely lifted in March 2017. Transactions involving imports and exports of goods and services, travel, interest payments, contractual installment payments and salaries were still permitted under the capital controls.

The Central Bank published its Capital Controls Liberalization Strategy in 2009 and later updated it in 2011. The strategy stated that the controls would be lifted 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 conclude the resolution of 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.

There remain offshore krona held by funds who declined to participate in the previous auctions. Entities holding such assets will be 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. Until then, the offshore ISK are locked into a non-interest bearing account at the Icelandic Central Bank.

On March 12, 2017, the cabinet and the Central Bank lifted capital controls affecting households and businesses effective March 14, involving “foreign exchange transactions, foreign investment, hedging, and lending activity,” although some permanent protections against foreign exchange instability remain in place (https://www.ministryoffinance.is/news/iceland-lifts-capital-controls ). 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.

All new FDI that flows into Iceland must be reported to the Central Bank through a local bank. Further information on the Central Bank’s remittance policies can be found on their website http://www.cb.is/the-bank/foreign-exchange/questions-and-answers/investment-in-iceland/ .

Iceland’s Financial Action Task Force (FATF) status is listed as monitored.

Sovereign Wealth Funds

Iceland does not have a Sovereign Wealth Fund.

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 same access to financing as SOEs through the banking system.

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 has 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 among 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 meet with 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 (ÁTVR), 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).

Privatization Program

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% 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.

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: https://www.atvinnuvegaraduneyti.is/verkefni/serverkefni/leidbeinandi-reglur-oecd-fyrir-althjodlega-fyrirtaeki/ 

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 2015 Iceland ranked 13th place out of 168 countries in Transparency International’s Corruption Perceptions Index Ranking.

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.

Contact at government agency responsible for combating corruption:

Ministry of Interior
Solfholsgata 7, 101 Reykjavik

Contact at “watchdog” organization:
Jenny Stefania Jensdottir
Gagnsæi (Icelandic chapter of Transparency International)
Gimli, Haskolatorg

Peaceful 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. 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.

The labor force in Iceland is highly skilled and educated. It consists of 202,800 people, aged between 16 and 74 years old as of March 2017; a labor force participation rate of 84.9 percent. Until the economic crisis in October 2008, demand for labor exceeded supply. Foreign labor fills the majority of unskilled service jobs and semi-skilled construction jobs, as the EEA Agreement allows for the free movement of labor within the area. Layoffs followed in the wake of the 2008 economic crisis, particularly in the financial and construction sectors, leading some foreign workers to depart. Unemployment in Iceland rose quickly and peaked at 9.1 percent in April 2009. Since then unemployment has steadily decreased, and as of March 2017, the unemployment rate was 1.7% and foreign labor has again been in high demand in unskilled and semi-skilled sectors such as tourism and construction.

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 40 hours. Some professions (mainly office clerks and sales assistants) have 37.5-39.5 hour work weeks. The law requires that employers compensate work exceeding eight hours per day as overtime. 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 (https://vinnumalastofnun.is/en ).

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. As a result of the financial crisis in 2008 and the current restructuring of the banking sector, however, project financing may be temporarily limited. Iceland is a member of the World Bank’s Multilateral Investment Guarantee Agency.

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

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2015 $17,031 2015 $16,780 http://www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2015 $-2,587** 2015 N/A http://bea.gov/international/direct_investment_
Host country’s FDI in the United States ($M USD, stock positions) 2015 $20*** 2015 N/A http://bea.gov/international/direct_investment_
Total inbound stock of FDI as % host GDP 2015 45.9%**** 2015 N/A N/A

* Source: Statistics Iceland (www.statice.is ) updated March 2017. GDP 2,214,086 million ISK using average exchange rate in 2015 1 USD=130 ISK.

** Source: Central Bank of Iceland (http://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5 ). Foreign direct investment stocks in Iceland -336,307 million ISK in 2015 using average exchange rate in 2015 1 USD=130 ISK approx. -2,587 million USD.

*** Source: Central Bank of Iceland (http://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5 ). Icelandic FDI in the U.S. 2,601 million ISK in 2015 using average exchange rate in 2015 1 USD=130 ISK approx. 20 million USD.

**** Source: Central Bank of Iceland (http://www.sedlabanki.is/hagtolur/nanar/2016/09/09/Bein-fjarfesting/?stdID=5 ) and Statistics Iceland (www.statice.is ). Foreign direct investment stocks in Iceland 1,017,413 million ISK = approx. 7,826 million USD and GDP 2,214,086 million ISK = approx. 17,031 million USD using average exchange rate in 2015.
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 (2015) Outward Direct Investment (2015)
Total Inward 10,995 100% Total Outward 10,861 100%
Luxembourg 6,435 58.5% Netherlands 2,512 23.1%
Netherlands 3,138 28.5% United States 1,660 15.3%
Bermuda 1,150 10.5% United Kingdom 1,647 15.2%
Switzerland 573 5.2% Switzerland 1,149 10.6%
Denmark 374 3.4% Luxembourg 753 6.9%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets*
Top Five Partners (Millions, US Dollars) (2016)
Total Equity Securities Total Debt Securities
All Countries 7,481 100% All Countries 6,781 100% All Countries 700 100%
Luxembourg 2,507 33.5% Luxembourg 2,507 37% United States 246 35.1%
Ireland 1,893 25.3% Ireland 1,891 27.9% Germany 118 16.9%
United States 1,509 20.2% United States 1,263 18.6% Netherlands 95 13.6%
United Kingdom 384 5.1% United Kingdom 296 4.4% United Kingdom 88 12.6%
France 252 3.4% France 204 3% Norway 56 8%

* Source: IMF http://data.imf.org/?sk=B981B4E3-4E58-467E-9B90-9DE0C3367363&ss=1481568994271 

Ester Halldorsdottir
Commercial Specialist
U.S. Embassy, Laufasvegur 21, 101 Reykjavik, Iceland

2017 Investment Climate Statements: Iceland
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