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Doing Business in Iceland

8. October, 2012

Ever since the global banking crisis, which hurt Iceland in a spectacular fashion, things have slowly but surely been picking up. Iceland has become an interesting place for investors for several reasons, such as vast amounts of green energy, high availability of businesses coming to the market as a result of restructuring and a favourable exchange rate to name a few.

Iceland is a member of the EEA and as such adheres to the legal framework of the EU. In general the investment environment is therefore similar to most European countries. The country has developed through the centuries relying heavily on foreign trade and doing business with foreigners has been a part and parcel of every day’s life of the normal Icelander for decades. The tax system is considered to be friendly towards investors and Iceland enjoys one of the lowest corporate tax rates within the OECD. The reformed banking system is modern and one of the positive consequences of the crisis is that the legal system is more sophisticated post the crisis as abundance of experience has been gathered as a result of the endless legal battles that inevitably are associated with a banking crisis of the magnitude that Iceland faced.

The labour law has the necessary elasticity to allow businesses to grow which appears in the relatively low unemployment ratio. In general Icelanders are well educated and historically education has been sought on both sides of the Atlantic giving Iceland a truly international flavour.

One of the consequences of the crash of the Icelandic economy was currency restrictions that were implemented. A lot of foreign debt was accelerated immediately following the crash and the foreign exchange reserves were nowhere large enough to be able to deal with it. These currency restrictions both have pros and cons. It is difficult for investors to convert change whatever assets they may have in ISK into foreign currency but on the other hand investors that wish to invest foreign currency into Iceland can with certain conditions obtain get a more favourable exchange rate than the official exchange rate suggests and can convert the proceeds of their investment with certain conditions back into foreign currency.

Investing in Icelandic real estate has been popular by foreign investors in Iceland in recent years. For parties that reside within the EU/EEA area the process is very much simple and straight forward but for residents outside of that area it is somewhat more complicated.

The lawyers at LEX have decades of experience assisting foreign investors in Iceland, and the tasks range from assisting global corporates that wish to build large energy intensive smelters to individuals who wish to acquire a second home.

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