Iceland is an island country located in the north Atlantic Ocean near the Arctic Circle. Iceland has an advanced economy that centers around three primary sectors: fisheries, tourism, and aluminum production. Until recently, U.S. investment in Iceland mostly had been concentrated in the aluminum sector, with Alcoa and Century Aluminum operating plants in Iceland. However, U.S. portfolio investments in Iceland have been increasing steadily in recent years. Iceland’s convenient location between the United States and Europe; its high levels of education, connectivity and English proficiency; and a general appreciation for American products make Iceland a promising market for U.S. companies. U.S. citizens made up close to a quarter of the tourist population that visited in Iceland in 2019 prior to the onset of COVID-19 and the tourist industry’s contraction.
There is broad recognition within the Icelandic government that foreign direct investment (FDI) is a key contributor to the country’s economic revival after the 2008 financial collapse. As part of its investment promotion strategy, the Icelandic government operates a public-private agency called “Invest in Iceland” that facilitates foreign investment by providing information to potential investors and promoting investment incentives. Iceland has identified the following “key sectors” for investment: tourism; algae culture; data centers; and life sciences. Iceland offers incentives to foreign investors in certain industries, which can be found on Invest in Iceland’s website: (https://www.invest.is/).
Tourism has been a growing force behind Iceland’s economy in the past decade, with opportunities for investors in high-end tourism, including luxury resorts and hotels. The number of tourists in Iceland grew by more than 400 percent between 2010 and 2018, reaching more than 2.3 million in 2018. However, tourism in Iceland contracted in 2019, and the COVID-19 pandemic has had drastic effects on tourism and the overall economy. The government has announced measures to bolster the tourism economy and has committed to building out tourism-related infrastructure.
Startup and innovation communities in Iceland are flourishing, with the IT and biotech sectors growing fast. Iceland’s IT sector spans all areas of the digital economy: data management systems, workflow systems, communications solutions, wireless data systems, mobile systems, Internet solutions, e-commerce content and solutions, gaming, healthcare solutions, and fisheries technology systems are all exported to overseas markets. The Icelandic energy grid derives 99 percent of its power from renewable resources, making it uniquely attractive for energy-dependent industries. For instance, the data center industry in Iceland is expanding.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Iceland maintains an open investment climate. 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. For more information, see the English translation of the Act: (https://www.stjornarradid.is/leit/$LisasticSearch/Search/?SearchQuery=Act+on+incentives+for+initial+investments+in+Iceland).
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. There is a debate, however, within Iceland over balancing energy-intensive FDI with the environmental impact associated with certain projects. That said, energy-intensive industries, long dominated by aluminum smelting, have expanded to include silicon production plants and data centers. For further resources see: (http://www.invest.is/doing-business/incentives-and-support).
Tourism has been a growing force behind Iceland’s economy in the past decade, with opportunities for investors in high-end tourism, including luxury resorts and hotels. The number of tourists in Iceland grew by more than 400 percent between 2010 and 2018, reaching more than 2.3 million in 2018. However, tourism in Iceland contracted in 2019 with visitors falling just below 2 million, which can be largely attributed to the bankruptcy of Icelandic budget airline WOW Air. The COVID-19 pandemic has had drastic effects on tourism, as well as on Iceland’s overall economy, which contracted by 6.6 percent in 2020, according to Statistics Iceland. The sector is facing numerous bankruptcies due to COVID-19 closures and travel bans. The government has implemented measures to bolster the tourism economy and has committed to building out tourism-related infrastructure.
Isavia, a public company that handles the operation and development of Keflavik International Airport, is embarking on a $1-2 billion capital works project to expand the airport. Projects include extension of buildings, baggage screening and baggage handling systems, self-check in stations, waiting areas and retail/dining areas, check-in areas, bag-drop off areas, security areas, airbridges/gates for remote stands, re-modelling of existing terminal, de-icing platforms, new runway, new taxiway, and a new ATC tower. However, due to the COVID-19 pandemic, most tenders have been postponed.
The startup and innovation communities in Iceland are flourishing, with IT and biotech startups seeking investors. Foreign investment in the fisheries sector is restricted, as well as in the energy sector (hydropower and geothermal exploitation rights other than for personal use and energy processing and transportation are limited to Icelandic citizens and legal persons, and individuals and legal persons who reside in the European Economic Area). The wind energy sector is growing in Iceland, and the legal framework is still being developed for that sector.
Limits on Foreign Control and Right to Private Ownership and Establishment
The 1991 Act on “foreign investments for commercial purposes” limits foreign ownership of fishing rights and fish processing companies (only Icelandic citizens or companies that are controlled by Icelandic citizens and have less than 25 percent foreign shareholders can own or control fishing companies); of hydropower and geothermal exploitation rights other than for personal use and energy processing and transportation (only Icelandic citizens and legal persons, and individuals and legal persons who reside in the European Economic Area (EEA) can hold those rights); and of aviation operators (Icelandic ownership of aviation companies needs to be at least 51 percent, and this does not apply to individuals and legal persons that have EEA citizenship). The law further stipulates that foreign states, sub-national governments, or other foreign authorities are prohibited from investing in Iceland for commercial purposes, although the Minister of Tourism, Industries, and Innovation may grant exemptions. The responsibility to inform the relevant ministry of both new investments and investments in companies that the party in question has already invested in lies with the investor, or with the Icelandic company that the foreign individual or entity invested in (this does not apply to EEA citizens or residents).
However, the 1991 Act does not stipulate how foreign investment is screened or monitored by relevant authorities, only that the Minister of Tourism, Industries, and Innovation handles permits and monitors the execution of this legislation. The Minister can block foreign investment if he/she considers it a “threat to national security or goes against public policy, public safety or public health or if there are serious economic, societal or environmental complications in specific industries or in specific areas, that is likely to persist…” The law further states that the “Minister has the authority to stop foreign investment in systematically important companies if such investment entails systematic risk.” If an investment has already taken place, the Minister of Tourism, Industries, and Innovation has the authority to compel the foreign person or entity in question to sell.
The review notes that “with a small population and limited natural resources, apart from energy and fish, trade remains important but the range of exports is limited to tourism, fish and fish products, and aluminum and products thereof. Therefore, the country remains vulnerable to shocks, including the appreciation of the ISK, overheating of the economy, and Brexit. Furthermore, despite uncertainties relating to Brexit, as growth picks up in the EU, Iceland’s main trading partner, opportunities for trade in goods and services should continue to improve.”
The Organization for Economic Cooperation and Development (OECD) and UN Cooperation for Trade and Development (UNCTAD) have not conducted Investment Policy Reviews for Iceland.
Services offered by Invest in Iceland, a public-private agency that promotes and facilitates foreign investment in Iceland (http://www.invest.is), are free of charge to all potential foreign investors. Invest in Iceland can provide information on investment opportunities in Iceland; collect data on the business environment, arrange site visits and plan contacts with local authorities; arrange meetings with local business partner and professional consultants; influence legislation and lobby on behalf of foreign investors (https://www.invest.is/at-your-service/what-we-do). Invest in Iceland offers detailed information on how to establish a company on its website (http://www.invest.is/doing-business/establishing-a-company). Its sister agencies, Business Iceland (formerly Promote Iceland) (https://www.businessiceland.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 movies and television productions.
The Icelandic Government along with other stakeholders promote exports of Icelandic goods and services through the public-private agency Islandsstofa, also known as Business Iceland (https://www.businessiceland.is/). Business Iceland assists Icelandic businesses in the main industry sectors export 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). Business Iceland has been increasingly active in the United States and Canada in recent years. A trade commissioner represents the Icelandic Ministry of Foreign Affairs in New York, facilitating exports to the United States and promoting business relations between the two countries. Business Iceland also promotes exports to the U.K., Northern and Southern Europe, and more recently to Asia (China and Japan).
Iceland imposed capital controls following the economic collapse in late 2008, which largely prevented Icelandic investors and pensions funds from investing outside of Iceland. The government lifted capital controls on March 14, 2017.
2. Bilateral Investment Agreements and Taxation Treaties
The United States does not share either a bilateral investment treaty (BIT) or a free trade agreement (FTA) with Iceland, although the two countries signed a Trade and Investment Framework Agreement (TIFA) in January 2009 and have convened an annual Economic Dialogue. The United States and Iceland do not have a treaty granting visas for commerce and navigation (i.e. E1/E2 visas for Treaty Traders and Treaty Investors).
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 with reduced or zero tariffs on Icelandic seafood exported to the EU. In 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 of more than 340 categories of unprocessed agricultural products, and reduced tariffs of more than 20 categories. U.S. agricultural products exported to Iceland face tariffs that are up to 30 percent higher than products from the EEA.
Iceland signed a trade agreement with the People’s Republic of China (entered into force in 2014) that offers reciprocal tariff-free treatment on a range of goods. Iceland has an FTA with the Faroe Islands (entered into force in 2006). Iceland signed a customs agreement with Denmark on behalf of Greenland (entered into force 1985). The EFTA member states have collectively signed FTAs with Albania, Bosnia and Herzegovina, Chile, Egypt, Gulf Cooperation Council (GCC), Georgia, Hong Kong, Israel, Jordan, Canada, Columbia, Lebanon, Macedonia, Morocco, Mexico, Costa Rica, Guatemala, Panama, Peru, Palestine, Singapore, Serbia, South Korea, Montenegro, Southern African Customs Union (SACU), Tunisia, Turkey, and Ukraine (https://www.stjornarradid.is/verkefni/utanrikismal/utanrikisvidskipti/vidskiptasamningar/friverslunarsamningar/).
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. The United States and Iceland signed a social security totalization agreement, titled “Agreement on Social Security between the United States of America and Iceland,” and the accompanying legally binding administrative arrangement titled “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, which entered into force on March 1, 2019.
3. Legal Regime
Transparency of the Regulatory System
The regulatory 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. Icelandic laws regulating business practices are consistent with those of most OECD member states.
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. For more information see the Competition Authority’s website: (https://en.samkeppni.is/) and the Consumer Agency website: (https://www.neytendastofa.is/English).
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). 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).
Ministries or regulatory agencies develop bills, which are available to the general public. Ministries or regulatory agencies publish the text of the proposed regulations before their enactment on a unified website (https://www.stjornartidindi.is/). Ministries or regulatory agencies solicit comments on proposed regulation from the general public. 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/).
The OECD published a report on Iceland in September 2019. One of the findings of the report was that regulatory barriers are high in Iceland. “Regulation should be more commensurate with the needs of a small open economy. Product market regulation is stringent and the administrative burden for start-ups is high, holding back investment and innovation. Restrictions to foreign direct investment are among the highest of the OECD, limiting employment and productivity gains through international knowledge transfer. The government should set up a comprehensive action plan for regulatory reform, prioritizing reforms that foster competition, level the playing field between domestic and foreign firms, and attract international investment.” (http://www.oecd.org/economy/iceland-economic-snapshot/). The Government of Iceland has since the report worked to reduce the regulatory burden. The Minister of Tourism, Industries and Innovation and the Minister of Fisheries and Agriculture announced in October 2019 that they had eliminated more than a thousand regulations relevant to their ministries.
The Iceland Chamber of Commerce operates an independent arbitration institute, the Nordic Arbitration Centre (NAC). The NAC provides for a dispute resolution mechanism, allowing parties to solve their dispute efficiently and safely. Both the arbitration process and the Arbitral Tribunals final awards are strictly confidential. There have been no known cases of discrimination against U.S. investors. For more information visit the Iceland Chamber of Commerce’s website: (https://www.chamber.is/arbitration).
Icelandic laws regulating business practices are generally consistent with other OECD members. Iceland’s laws are generally based on EU directives due to 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.
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 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.
Iceland has a three-tier judicial system; eight District Courts (Héraðsdómstólar), the Court of Appeal (Landsréttur), and the Supreme Court (Hæstiréttur Íslands). 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 (Dómstólasýsla), along with the Court of Appeal (Landsréttur) began operating on January 1, 2018.
The Landsdómur is a special high court or impeachment court 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. 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. 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.
Iceland has no automatic screening process for investments that trigger national security concerns (similar to the Committee on Foreign Investment in the United States), although bidders in privatization sales may be required to go through a pre-qualification process to verify they possess the financial strength to participate. Investors that intend to hold more than 10 percent of shares (“active” shareholders) in financial institutions are subject to approval from the Central Bank of Iceland (http://en.fme.is/).
Competition Law no. 44/2005 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. For more information see the Competition Authority’s website: (https://en.samkeppni.is/).
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 and offshore krona assets) as a type of indirect expropriation (https://www.cb.is/financial-stability/foreign-exchange/offshore-krona-assets/).
ICSID Convention and New York Convention
Iceland is a member state to the International Center 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).
Investor-State Dispute Settlement
Iceland has ratified the major international conventions governing arbitration and the settlement of investment disputes.
There was a public dispute in 2016 and 2017 between hedge funds based in the U.S. and UK, and the Icelandic Government concerning offshore krona owned by these hedge funds and capital controls in effect following the economic collapse in 2008. These hedge funds filed a case against the Government of Iceland at the EFTA courts, but later dropped the case.
An Icelandic company that operates airports in Iceland grounded an airplane owned by an American leasing company in April 2019, due to outstanding debt towards the airport operator that an airline had accumulated. The airline had just declared bankruptcy and owed the airport operator around 2 billion ISK (approx. $15.8 million) in landing fees. The airport operator decided to ground the American plane that had been leased by the airline and insisted that the American company settled the airline’s debt. The American company took the airport operator to court and won the case and the plane was released.
International Commercial Arbitration and Foreign Courts
The Iceland Chamber of Commerce operates an independent arbitration institute, called the Nordic Arbitration Centre. 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 see the Iceland Chamber of Commerce’s website: (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. 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. Iceland ranks number 12 out of 190 economies on the World Bank´s Doing Business List for resolving insolvency.
4. Industrial Policies
Iceland welcomes foreign direct investment. Iceland has, through the public-private agency Invest in Iceland, identified the following “key sectors” in Iceland: algae cultures; data centers; life sciences and tourism. Iceland “focuses on favorable environment for businesses in general, including low corporate tax, availability of land and efficiency in a European legislative framework.” For information on incentives for foreign investors see Invest in Iceland’s website: (https://www.invest.is/).
The 2015 Act on Incentives for Initial Investments in Iceland 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.” For more information see the English translation of the act: (https://www.government.is/topics/business-and-industry/incentives-and-investment-agreements/).
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. Historically, foreign investment has been in energy-intensive industries, such as aluminum smelting, although investments in tourism, life sciences, and information technology have grown as a proportion of total FDI in recent years.
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).
Iceland follows the EU General Data Protection Regulation and is a member of the U.S.-EU Privacy Shield arrangement for transatlantic data transfers. The Icelandic Data Protection Authority (DPA) monitors the implementation of Regulation 2016/679 of the European Parliament and of the Council on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and of the Act on Data Protection and the Processing of Personal Data no. 90/2018. DPA’s law-enforcement work includes “monitoring data controllers and ensuring that they take appropriate security measures, in accordance with law”. For more information see the Icelandic Data Protection Authority’s website (https://www.personuvernd.is/information-in-english/).
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/).
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 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 leasing 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 see 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. Iceland is ranked number 16 out of 187 economies on the World Banks’s Doing Business Report in ease of registering property.
Intellectual Property Rights
Iceland adheres to key international agreements on intellectual property rights (IPR). Trademarks, copyrights, trade secrets, and industrial designs are all protected under Icelandic law. Iceland is a signatory of the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PCT), and of the European Patent Convention (EPC). For further information see (https://europa.eu/youreurope/business/running-business/intellectual-property/patents/iceland/index_en.htm). Iceland is also 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 (http://www.wipo.int/directory/en/).
The Icelandic Intellectual Property Office’s (ISIPO) is a government agency under the auspices of the Minister of Industries and Innovation. The institution was established on July 1, 1991, and assumed responsibility for the patent and trademark department from the Ministry of Industries. In 2019, ISIPO took up its current name, as it used to be called the Icelandic Patent Office. ISIPO’s scope of operation is defined by Advertisement No. 187/1991 and Regulation No. 188/1991. ISIPO is responsible for “issues relating to patents, trademarks, design protection, municipal emblems, and other comparable rights as provided for by law, regulations, and international agreements on the protection of intellectual property rights in the field of industry.” For more information visit, the ISIPO webpage in English (https://www.isipo.is/). There is information on how to recognize counterfeit products on ISIPO’s webpage in Icelandic (https://www.hugverk.is/frumkvodlar/vidhald-og-stjornun-hugverka/falsanir-og-brot-hugverkarettindum).
Illegal downloading and distribution of films and TV shows has decreased in the past couple of years due to widespread access to international streaming services, such as Netflix and Disney Plus. Purchasing cheap, counterfeit consumer goods on Chinese websites, namely AliEpxress.com, is popular in Iceland, although that trend has gone down somewhat due to increasing fees imposed by Iceland Post on incoming international deliveries. Customs seize counterfeit products if found and contact the rightsholder who then decides whether to press charges against the importer. If the owner of the intellectual property does not want to take legal actions, Customs clears the items and sends them to the importer. Iceland Revenue and Customs have on a few occasions seized counterfeit consumer goods which lead to charges against the importer, including shipments containing counterfeit Nike shoes and Arco designer lamps in 2014. Iceland Revenue and Customs participated in the United Nations Office on Drugs and Crime’s campaign against counterfeit products in 2014
Iceland is not listed in the USTR’s 2021 Special 301 Report, but it reportedly hosts servers for hosting provider FlokiNET, which is included in USTR’s 2020 Notorious Markets List.
6. Financial Sector
Capital Markets and Portfolio Investment
Capital controls were lifted in March 2017 after more than eight years of restricting the free movement of capital. New foreign currency inflows fall under the Rules on Special Reserve Requirements for new Currency Inflows, no. 223/2019 which took effect on March 6, 2019, and replaced the older Rules no. 490/2016 on the same subject. The rules contain provisions on the implementation of special reserve requirements for new foreign currency inflows, including the special reserve base, holding period, special reserve ratio, settlement currency, and interest rates on deposit institutions’ capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposit. The rules set the interest rate on capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposits at 0 percent and specify the Icelandic krona as the settlement currency. The current rules set the holding period at one year and the special reserve ratio at 0 percent. For more information see the Central Bank of Iceland’s website (https://www.cb.is/foreign-exch/capital-flow-measures/).
Foreign portfolio investment has increased significantly over the past few years in Iceland after being dormant in the years following the economic crash. U.S. investment funds have been particularly active on the Icelandic stock exchange. The Icelandic stock exchange operates under the name Nasdaq Iceland. For companies listed on Nasdaq Iceland, follow this link: (http://www.nasdaqomxnordic.com/hlutabref/Skrad-fyrirtaeki/iceland).
The private sector has access to financing through the commercial banks and pensions funds.
The IMF 2019 Article IV Consultation report states that “the de jure exchange rate arrangement is free floating, and the de facto exchange rate arrangement under the IMF classification system is floating. In the period from November 2018 to October 31, 2019, the Central Bank of Iceland (CBI) intervened in the foreign exchange market on 14 of the 248 working days. The CBI publishes daily data on its foreign exchange intervention with a lag. Iceland has accepted the obligations under Article VIII, Sections 2(a), 3, and 4 and maintains no exchange restrictions subject to Fund jurisdiction under Article VIII, Section 2(a). Iceland continues to maintain certain measures that constitute exchange restrictions imposed for security reasons based on UN Security Council Resolutions.”
The Central Bank of Iceland is an independent institution owned by the State and operates under the auspices of the Prime Minister. Its objective is to promote price stability, financial stability, and sound and secure financial activities. The bank also maintains international reserves and promotes a safe, effective financial system, including domestic and cross-border payment intermediation. For more information see the Central Bank of Iceland’s website (https://www.cb.is/).
The Icelandic banking sector is generally healthy. After the financial collapse of 2008, the Central Bank of Iceland introduced stringent measures to ensure that the financial system remains “safe, stable, and effective (https://www.cb.is/financial-stability/).” There are three commercial banks in Iceland: Landsbankinn, Islandsbanki, and Arion Bank. The Government of Iceland took over operations of the banks during the financial collapse in September and October 2008. Landsbankinn (formerly known as Landsbanki Islands) and Islandsbanki (formerly known as Glitnir) are government owned (the government of Iceland owns 98.2 percent shares in Landsbankinn and 100 percent shares in Islandsbanki), while Arion Bank (formerly known as Kaupthing Bank) has been privatized. Arion Bank is listed on the Icelandic stock exchange Nasdaq Iceland. There is one investment bank in Iceland, Kvika, which is listed on Nasdaq Iceland. The Minister of Finance is seeking to privatize Landsbankinn and Islandsbanki. Icelandic pension funds offer loans and mortgages and are active investors in Icelandic companies. There are no foreign banks operating in Iceland.
All companies have access to regular commercial banking services in Iceland. Businesses have access to financing with the commercial banks, but banks have reduced corporate lending in the past months due to the current economic climate (the Icelandic economy had started to cool in late 2019).
Establishing a bank account in Iceland requires a local personal identification number known as a “kennitala.” Foreign nationals should contact Registers Iceland for more information on how to register in Iceland (https://www.skra.is/english/).
Foreign Exchange and Remittances
The Act on Investment by Non-Residents in Business Enterprises no. 34/1991 and no. 46/1996 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.” (Source: https://www.government.is/search/$LisasticSearch/Search/?SearchQuery=The+Act+on+Investment+by+Non-residents+in+Business+Enterprises+). 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 Annual Report on Exchange Arrangements and Exchange Restrictions 2018, published by the International Monetary Fund (IMF), states that “Iceland fully eliminated exchange restrictions on conversions and transfers related to current international transactions with bonds.” “Iceland progressively relaxed and finally eliminated restrictions on withdrawing foreign currency cash from resident’s domestic foreign exchange accounts and eased rules governing transfers abroad for some financial transactions. It also gradually eased and eventually removed the requirement that residents repatriate foreign currency acquired abroad.”
The Central Bank of Iceland publishes the official exchange rate on its website (https://www.cb.is/statistics/official-exchange-rate/). “The exchange rate of the Icelandic krona is determined in the foreign exchange market, which is open between 9:15hrs. 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.”
Most restrictions on foreign exchange transactions and cross-border movement of domestic and foreign currency were lifted on March 14, 2017, when capital controls were lifted. New foreign currency inflows fall under the Rules on Special Reserve Requirements for new Currency Inflows, no. 223/2019 which took effect on March 6, 2019, and replaced the older rules no. 490/2016 on the same subject. The rules contain provisions on the implementation of special reserve requirements for new foreign currency inflows, including the special reserve base, holding period, special reserve ratio, settlement currency, and interest rates on deposit institutions’ capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposit. The rules set the interest rate on capital flow accounts with the Central Bank of Iceland and Central Bank certificates of deposits at 0 percent and specify the Icelandic krona as the settlement currency. The Foreign Exchange Act no. 87/1992 and the Act no. 42/2016 Amending the Foreign Exchange Act state that the holding period may range up to five years and that the special reserve ratio may range up to 75 percent; however, the aforementioned rules set the holding period at one year and the special reserve ratio at 0 percent. For more information see the Central Bank of Iceland’s website (https://www.cb.is/foreign-exch/capital-flow-measures/).
Sovereign Wealth Funds
The Government of Iceland has proposed establishing a sovereign wealth fund, called the National Fund of Iceland. The bill to establish the fund has not passed through Parliament. The stated purpose of the fund is “to serve as a sort of disaster relief reserve for the nation, when the Treasury suffers a financial blow in connection with severe, unforeseen shocks to the national economy, either due to a plunge in revenues or the cost of relief measures that the government has considered unavoidable to undertake.”
7. State-Owned Enterprises
The Icelandic Government owns wholly or has majority shares in 37 companies, including systemically important companies such as energy companies, the Icelandic National Broadcasting Service (RUV) and Iceland Post. Other notable SOEs are Islandsbanki and Landsbankinn (two out of three commercial banks in Iceland), Isavia (public company that operates Keflavik International Airport), and ATVR (the only company allowed to sell alcohol to the general public). Here is a list of SOEs: https://www.stjornarradid.is/verkefni/rekstur-og-eignir-rikisins/felog-i-eigu-rikisins/. Total assets of SOEs in 2019 amounted to 5,293 billion ISK (approx. $41.7 billion) and SOEs employed around 6,000 people that same year. In terms of assets and equity, Landsbankinn (one of three commercial banks in Iceland) is the largest SOE in Iceland, and Isavia employs the most people.
State-owned enterprises (SOEs) generally compete under the same terms and conditions as private enterprises, except in the energy production and distribution sector. Private enterprises have similar access to financing as SOEs through the banking system.
As an OECD member, Iceland adheres to the OECD Guidelines on Corporate Governance. The Iceland Chamber of Commerce in Iceland, NASDAQ OMX Iceland and the Confederation of Icelandic Employers have issued guidelines that mirror the OECD Guidelines on Corporate Governance. Iceland is party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO).
For SOEs operating within the private sector in a competitive environment, the general guideline from the Icelandic government is that all decisions of the board of the SOE should ensure a level playing field and spur competition in the market.
In the midst of the banking crisis, the state, through the Financial Supervisory Authority (FME), took over Iceland’s three largest commercial banks, which collapsed in October 2008, and subsequently took over several savings banks to allow for uninterrupted banking services in the country. The government has stated its intention to privatize Landsbanki and Islandsbanki. The Bank Shares Management Company, established by the state in 2009, manages state-owned shares in financial companies.
The government of Iceland has acquired stakes in many companies through its ownership of shares in the banks; however, it is the policy of the government not to interfere with internal or day-to-day management decisions of these companies. Instead, in 2009, the state established the Bank Shares Management Company to manage the state-owned shares in financial companies. The board of this entity, consisting of individuals appointed by the Minister of Finance, appoints a selection committee, which in turn chooses the State representative to sit on the boards of the various companies.
While most energy producers are either owned by the state or municipalities, there is free competition in the energy market. That said, potential foreign investment in critical sectors like energy is likely to be met by demands for Icelandic ownership, either formally or from the public. For example, a Canadian company, Magma Energy, acquired a 95 percent stake in the energy production company HS Orka in 2010, but later sold a 33.4 percent stake to the Icelandic pension funds in the face of intense public pressure.
Iceland’s universal healthcare system is mainly state-operated. However, few legal restrictions to private medical practice exist; private clinics are required to maintain an agreement regarding payment for services with the Icelandic state, a foreign state, or an insurance company.
There are no privatization programs in Iceland at the moment. However, the government of Iceland owns two commercial banks (Landsbankinn and Islandsbanki) and has stated that it intends to privatize both. The government took ownership of the banks when the Icelandic banking system collapsed in 2008. The Ministry of Finance and Economic Affairs reiterated on January 29, 2021 its intent to sell government of Iceland shares in Islandsbanki.
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 (https://www.stjornarradid.is/verkefni/atvinnuvegir/vidskipti/almenn-vidskiptamal/).
Business Iceland (formerly Promote Iceland), a public-private agency, has signed the United Nations’ Global Compact (GC) and raises awareness of corporate social responsibility in Iceland. Festa, a non-profit organization which promotes sustainable development and corporate social responsibility, has over 120 associated members, including some of Iceland’s largest companies, public organizations, universities, and municipalities (www.samfelagsabyrgd.is/festa). Gagnsaei, an NGO affiliated with Transparency International, is active in Iceland and is a voice against corruption and for responsible business practices (www.transparency.is). There is a general awareness of corporate social responsibility among producers, companies, and consumers.
There was a high-profile case in 2018 and 2019 surrounding a private employment agency which has now been declared bankrupt, that allegedly mistreated migrant Romanian workers by failing to pay salaries and provide housing as per agreement. The Directorate of Labor fined the company in 2019 for failing to register workers adequately.
As an OECD member state, Iceland adheres to the OECD Due Diligence Guidance recommendations to help companies respect human rights and avoid contributing to conflict through their mineral purchasing decisions and practices. The Icelandic economy does not have a mining industry, other than extracting rocks and gravel for construction purposes. In 2013, then Icelandic Prime Minister Sigmundur David Gunnlaugsson issued a joint statement with the other Nordic Prime Minister to reaffirm their support to the Extractive Industry Transparency Initiative (EITI).
In 2020 Iceland ranked 17 out of 180 economies on the Transparency International’s Corruption Perceptions Index, indicating low levels of public perceptions of corruption. Isolated cases and allegations of corruption have been known to occur. Iceland has signed the UN Convention against Corruption. Iceland is a member of the OECD Convention on Combatting Bribery.
The Council of Europe body Group of States Against Corruption (GRECO) published its fifth evaluation report on Iceland on April 12, 2018. Its key findings: Iceland lacked a dedicated government-wide policy plan on anti-corruption and that its existing agency and institution-specific codes of conduct were not sufficiently detailed and are often implemented in an ad hoc manner. For more information, see the GRECO report (https://rm.coe.int/fifth-evaluation-round-preventing-corruption-and-promoting-integrity-i/16807b8218).
In the wake of the financial collapse in Iceland in 2008, the Code of Conduct for Staff in the Government Offices of Iceland was established in 2012, “with the purpose of promoting professional methods and of confidence in public administration.” The code of conduct addresses workplace relations and procedures; behavior and conduct; conflicts of interest and shared interests; communication with the media, public and surveillance bodies; and responsibility and monitoring for Government Offices staff. For more information see the Government of Iceland’s website (https://www.government.is/ministries/prime-ministers-office/code-of-conduct-for-staff/). The code does not extend to family members of officials or political parties.
Resources to Report Corruption
Contact at the government agency or agencies that are responsible for combating corruption:
Arni Muli Jonasson
Gagnsæi (Icelandic chapter of Transparency International)
Gimli, Haskolatorg, 101 Reykjavik, Iceland email@example.com
10. Political and Security Environment
Politically motivated violence in Iceland is rare, and Iceland consistently ranks among the world’s safest countries. 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. Following the collapse of the government of the Progressive Party and the Independence Party in the wake of the Panama Papers scandal, snap elections were called. Since the November 2017 formation of the current coalition government comprising the Independence Party, Progressive Party, and the Left-Green Movement, there has been a high degree of political stability in Iceland.
There have been individual cases of politically motivated vandalism of foreign holdings in recent years, directed primarily at the aluminum industry.
11. Labor Policies and Practices
The labor force in Iceland is highly skilled and educated. In 2020, the labor force consisted of 202,200 people aged between 16 and 74 years old, according to Statistics Iceland. Of them, 189,200 people were employed and 13,000 unemployed at the end of 2020. According to the Directorate of Labor, unemployment reached 11.4 percent in February 2021, which can be largely attributed to the adverse effects that COVID-19 has had on Iceland’s most important industry, tourism. Foreign labor plays a large role in unskilled and semi-skilled sectors such as tourism and construction. In December 2020, 30,000 immigrants were employed in Iceland, according to Statistics Iceland.
Icelandic Labor Laws are taken seriously in Iceland and there are no waivers to attract or retain investment. The labor unions and Directorate of Labor conduct spot inspections on worksites to monitor legal compliance. The labor market is highly unionized, with 91.9 percent of the workforce members of trade unions in 2020, according to Statistics Iceland.
Icelandic labor unions are decentralized and not politically affiliated. Collective bargaining power, in both the public and the private sectors, rests with individual labor unions. The law does not establish a minimum wage, but the minimum wages negotiated in collective bargaining agreements apply automatically to all employees in those occupations, including foreign workers, regardless of union membership. While the agreements can be either industry-wide, sector-wide, or in some cases firm-specific, the type of position defines the negotiated wage levels. The government has sometimes imposed mandatory mediation to avert or end strikes in key economic sectors such as healthcare or fisheries.
The standard legal work week is 40 hours. However, most office workers have 37.5 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.
Outside terminating an employee, employers are by law prohibited from making unilateral amendments to hiring contracts. In the instances of mass layoffs, companies are mandated to report them to the Directorate of Labor. However, the terminated employee retains the same rights to severance benefits regardless of whether they were part of a mass layoff, or fired. For further information, see the Directorate of Labor website (https://vinnumalastofnun.is/en).
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
There are no current International Development Finance Corporation (DFC) or Overseas Private Investment Corporation (OPIC) operations in Iceland. 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
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)