General data
Iceland is an island in the North Atlantic. It is home to a progressive and peaceful nation that has formed a modern society where freedom and equality are the most important qualities. Iceland continuously ranks near the top of measurements for quality of life, gender equality, and democracy, and is one of the highest ranked countries in the world regarding health care, education and internet availability.
Iceland is a country of extreme geological contrasts. Widely known as “The Land of Fire and Ice” Iceland is home to some of the largest glaciers in Europe, and some of the world’s most active volcanoes. Iceland is also the land of light and darkness. Long summer days with near 24-hours of sunshine are offset by short winter days with only a few hours of daylight.
The cornerstone of Icelandic culture is the Icelandic language, which has spawned a literary tradition that dates back to the ancient Icelandic Sagas. These are tales of violent blood feuds, traditions, family, and character. A strong literary tradition still thrives in modern Iceland. Icelandic authors publish more books per capita than in any other country in the world. Iceland also boasts a prospering music scene, a burgeoning film industry, and Icelandic design is coming of age.
Geograpy
Iceland is a Nordic island country in the North Atlantic, with a population of 348,580 and an area of 103,000 km2. The capital city is Reykjavík. Reykjavík and the surrounding areas in the southwest of the country are home to over two-thirds of the population.
Iceland is volcanically and geologically active. The interior consists of a plateau characterised by sand and lava fields, mountains, and glaciers, while many glacial rivers flow to the sea through the lowlands. Iceland is warmed by the Gulf Stream and has a temperate climate, despite a high latitude just outside the Arctic Circle. Its high latitude and marine influence keep summers chilly, with most of the archipelago having a tundra climate.
Tourism
Iceland is ranked among the most beautiful touristic places with its culture, history and heritage. When the first Viking settlers arrived in Iceland in the late 9th century A.D., they found an uninhabited island.
Nowadays, Iceland is a modern country that has evidences of past times and rich cultural heritage still visible everywhere you look. Icelanders enjoy natural hot springs and geothermal lagoons, such as the famous Blue Lagoon and Mývatn Nature Baths, whose high levels of silicates and other minerals have an especially rejuvenating effect on the skin.
Iceland is home to the largest glaciers in Europe, as well as some of the world’s most active volcanoes. It is widely known as “The Land of Fire and Ice” or the land of light and darkness. And also there is nature’s most spectacular exhibitions of beauty; the Aurora Borealis.
Economic overview
Iceland has a market economy with relatively low taxes, compared to other OECD countries. It maintains a Nordic social welfare system that provides universal health care and tertiary education for its citizens.
Iceland ranks high in economic, political, and social stability and equality. In 2016, it was ranked as the 9th most developed country in the world by the United Nations’ Human Development Index, and it ranks first on the Global Peace Index. Iceland runs almost completely on renewable energy.
The Icelandic economy has traditionally been dominated by fish and seafood, later by banking and finally now by something hopefully far more balanced.
In centuries past Icelanders had little the world at large wanted to buy – with the exception of excellent lamb, mutton and wool; and the plentiful supply of fish in the sea.
Iceland’s economy is a combination between a capitalist structure and free-market principles with an extensive welfare system. Except for a brief period of crisis during 2008, Iceland has a high growth economy, low unemployment, and a remarkably even distribution of income.
The economy still depends on the fishing industry, which provides 40% of merchandise export earnings, more than 12% of GDP, and employs nearly 5% of the work force. It remains sensitive to declining fish stocks, as well as to fluctuations in world prices for its main exports: fish and fish products, aluminum, and ferrosilicon.
Iceland’s economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of tourism, software production, and biotechnology.
Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminum sector, boosted economic growth, and sparked some interest from high-tech firms looking to establish data centers using cheap green energy.
Economic key sectors
Fisheries
Fisheries and related sectors are the single most important part of the Icelandic economy, representing an overall contribution to GDP of 27.1%. The fisheries sector directly employs around 5% of Iceland’s workforce. Many of these jobs are provided by technological companies that manufacture equipment for fisheries firms and by companies engaged in the advanced processing of marine products or in biotechnical production.
By contrast, aquaculture remains a very small industry in Iceland, employing only around 250 people for a production of 5,000 tons. Iceland is the second biggest fisheries nation in the North East Atlantic behind Norway.
Manufacturing
Iceland is the world’s largest electricity producer per capita. The presence of abundant electrical power due to Iceland’s geothermal and hydroelectric energy sources has led to the growth of the manufacturing sector. Power-intensive industries, which are the largest components of the manufacturing sector, produce mainly for export.
Aluminum
Aluminum smelting is the most important power-intensive industry in Iceland. There are currently three plants in operation with a total capacity of over 800,000 mtpy, putting Iceland at 11th place among aluminium-producing nations worldwide.
These plans claim that construction will entailed no human displacement, no impact on endangered species, and no danger to commercial fisheries; there will also be no significant effect on reindeer, bird and seal populations.
Tax in Iceland
Tax rates
Persons with unlimited tax liability
The rate of income and municipal tax is calculated on two levels:
- 36,94 % for income between ISK 0 – 893.713 pr. month
- 46,24 % for income exceeding ISK 893.714 pr. month
The above numbers apply after pension fund premium has been deducted from income.
Personal tax credit, which is ISK 53.895 pr. month, is deducted from calculated taxes. If annual income is below ISK 1.750.782 no income or municipal income tax is to be paid. Children under 16 years of age pay 6% of income exceeding ISK 180.000 pr. year.
A fee paid into the Construction Fund for the Elderly, and TV-licence tax is levied on all individuals aged 16-69 with income above the aforementioned tax-free limits.
Capital income tax is 22 % of capital income exceeding ISK 150.000 pr. year. Capital income tax of rental income is also 22%, but only 50% rental income are liable to tax.
The municipalities collect real estate tax on all real estate, which is a percentage of the building’s and the lot’s real estate evaluation, and that percentage is decided by each municipality.
Persons with limited tax liability
The rate of income and municipal tax is calculated on two levels:
- 36,94 % for income between ISK 0 – 893.713 pr. month
- 46,24 % for income exceeding ISK 893.714pr. month
The above numbers apply after pension fund premium has been deducted from income. Personal tax credit is ISK 1.772 pr. day and are calculated according to the residence day in the country.
Those with limited tax liability in Iceland does not have to pay a fee into the Construction Fund for the Elderly, or TV-licence tax.
Invest in Iceland
Competitive government incentives
Iceland offers great opportunities for foreign investors where an advanced economy meets low corporate taxes and incentives for foreign direct investment.
Iceland provides abundance of sustainable energy from hydro and geothermal resources offers a European legislative framework and maintains a highly skilled workforce.
New direct investment projects can apply for an investment agreement, ensuring generous regional incentives. EU regulation does also allow general incentives for SMEs, R&D and environmental protection.
Foreign experts, hired to work in Iceland, do enjoy personal tax incentives. A special tax deduction allows that only 75% of the income is considered taxable for the first three years of employment, fulfilling specified conditions.
Efficient business environment
The business environment in Iceland is highly efficient where there is business flexibility, a flexible labor market and business friendly regulations. Access to official bodies and agencies is easy in Iceland’s small society.
Government policy aims to provide a fair, efficient and competition-driven operating environment for companies within a market economy, and to encourage foreign investment, especially in areas that diversify the economy. Iceland is in the 11th place for cooperation in labor-employer relations and 11th in women in labor force, ratio to men.
Educated labor force
Of the total population of 346,750 in 2017 Q3, Iceland’s labor force totalled 198,600 individuals. The total labor participation rate was 82% and the unemployment was rated at 2.2%.
Competitive priced green energy
Iceland is the only country in Western Europe that still has considerable resources of competitively priced, renewable energy remaining to be harnessed.
Iceland has rich resources of hydroelectric and geothermal energy, which are responsibly and renewably harnessed to provide electrical power, space heating, hot water and steam for industrial, commercial and domestic use.
Iceland’s energy infrastructure ranks number 1 in Europe according to IMD’s World competitiveness yearbook 2014 for reliability, efficiency and cost.
Iceland offers long-term energy contracts, as well as enabling companies to cut cost and minimize their carbon footprint. Scalable locations are available with advanced infrastructure.
Hydro Power
Natural conditions in Iceland favor the use of hydroelectric installations for the generation of electricity.
In 2014, the installed capacity was 1.986 MW, generating 72% of the country’s electricity production. The largest single hydropower plant has a capacity of 690MW.
Geothermal Energy
Geothermal energy is used for domestic and industrial purposes.
Over 85% of the population enjoys central heating using geothermal energy at a price that is less than half the cost of oil or electric heating.
Geothermal steam is used directly for a number of industrial processing applications.
Free trade with China
Iceland has an extensive Free Trade Agreement with China, signed April 15, 2013.
Combined with Iceland‘s membership of the common European Market, its ideal location between North America and Europe, as well as an advanced business environment and infrastructure, this FTA opens new opportunities for investors seeking to export to the world‘s fastest growing market.
European regulatory framework
EEA Agreement
Iceland is a part of the European Economic Area (EEA). Although Iceland is not a member of the Euroean Union (EU), the EEA Agreement unites member states into one single market governed by the same basic rules: free movement of goods, capital, services and persons, and competition rules.
European Co-operation in Iceland
Iceland is also a member of WTO, OECD and a number of other trade related organizations.
The benefits of the large market of the EU are many, including access to a large number of suppliers, less beurocracy, huge market to sell goods and services in, and harmonized standards.
Regulatory Framework
A company operating in Iceland follows the rules and standards of the EU requirements.
The procedure of building in Iceland has been implemented from the European Union directive on Environmental Impact Assessment (EIA), so the procedure is mainly harmonized.
Low corporate tax
Iceland’s corporate income tax of 20% is one of the lowest in Europe and among the OECD member countries. For more than a decade, the government has tailored packages of measures to fit wage contracts negotiated in collective bargaining between employers and unions.
Strategic location
Iceland is located midway between Europe and North America. This North Atlantic island has an area of 103,000 km2 (40,000 sq mi), which is roughly equal in size to:
- Denmark, the Netherlands and Belgium combined
- Scotland and Wales combined
- The U.S. state of Kentucky
- South Korea
Excellent infrastructure
Iceland has excellent infrastructure, which is ranked in 1st place for basic infrastructure by IMD World Competitiveness Report.
Information and Communications Technology
The country is among the leading countries in the world in terms of ICT. According to the IMD competitiveness report, Iceland has the second highest information technology skills in the world along with having highly extensive connectivity and advanced communications technology.
The Icelandic infrastructure for telecommunications networks and services is highly advanced, and unique for such a small nation. All population centres in Iceland have access to high-speed fibre-optic cable services and over 90% of Iceland’s population has access to the Internet, either at home or work, if not both.
Road system
A 1,400 km Ring Road with well-maintained roads connects all major population centres and industrial sites around Iceland. Extensive land transport services link towns and harbours. These are complimented by year-round public coach services.
Air connections
Keflavík Airport near Reykjavik is Iceland’s principal international airport, with daily flights going all over the world.
Icelandair offers passenger and cargo services to and from more than twenty gateways year-round on either side of the Atlantic.
WOW air also offers year-round flights to Europe and N-America, and several other international carriers operate for at least part of the year.
Flight duration is 2.5-5 hours to Europe and 5-6 hours to the United States (East Coast) and Canada.
Freight ports
Smyril line operates passenger ferry Norröna, which connects Iceland, Denmark and the Faroe Islands.
Icelandic freight ports are extremely busy with both imports and exports, being taken to and from all over Europe and USA.
Shipping takes 3–4 days to Europe and 7–8 days to North America. Harbours are ice-free all year round.
Quality of life
Throughout the years, Iceland has been placed on top of lists in terms of happiness and general satisfaction. Iceland was the highest rated country in terms of life satisfaction in the OECD Better Life Index 2015, as well as for quality of local living environment.
The vibrant cultural scene in Reykjavik, a supporting social welfare system along with having the blue lagoon, spurting geysers, glaciers and waterfalls in close proximity, make Iceland a great country to live in.
The summers are surprisingly warm, lush and green and during the winter you can marvel at the amazing, green, blue, yellow and pink lights of the aurora in the night sky.
The great qualities of living in Iceland are many, including:
- Lively culture
- High life expectancy
- Excellent Education System
- Literature
- Welfare System
- Nature just around the corner
- Business culture
- Gender equality
- Personal safety
- Tolerance and inclusion
- Access to information and communications