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: http://www.stjornartidindi.is 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 http://www.invest.is .
Iceland scores 4.75 out of 6 on The World Bank’s Global Indicators of Regulatory Governance index http://rulemaking.worldbank.org/en/data/explorecountries/iceland .
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 https://www.stjornartidindi.is/ . 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 https://www.althingi.is/ and separate website managed by the Ministry of Justice https://www.stjornartidindi.is/ .
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: https://statice.is/statistics/economy/public-finance/
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 (http://en.fme.is/ ).
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 (https://www.government.is/topics/business-and-industry/incentives-and-investment-agreements/ ) 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 http://chamber.is/services/NAC .
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.