Starting a business in Iceland – an English language guide

Introduction

To establish a company in Iceland you need a Kennitala which is a personal ID. Verify if any special licensing or permits are required for your business activity sector. Decide on your business structure and register your business with the Director of Internal Revenue (Ríkisskattstjóri / RSK). The tax year runs from 01/01/xx to the 31/12/xx each year. In general, personal tax returns must be filed by the 10th Mar and corporate tax returns by the 31st May for the previous financial tax year.

The difficulty with establishing a business in Iceland lies in navigating the information from the various different organisations that you have to deal with. Often the information only exists in Icelandic. Where there is an English option of the website, the information is often incomplete. You can use a translator (if using Google Chrome simply right click on any web page and select translate to English) but even then the translations can be highly inaccurate and confusing.

In general, Icelandic people are friendly, very helpful and have a firm grasp of the English language. This is also true of the workforce in the various different organisations that you will be dealing with. For accurate information, advice and guidance, you are encouraged to call the organisation you are dealing with directly.

This guide aims to outline what your options are and how to identify, find and navigate the relevant information from the various different authorities you will need to deal with when starting your new business. It gives some basic guidance on business planning for startups, financial and legal requirements, and some useful resources to help you start your business.

Disclaimer

The information provided does not constitute legal, tax or accounting advice, but is designed to provide general information relating to starting a business in Iceland. This content is not a substitute for obtaining the advice of a competent professional, for example from a licensed attorney, law firm, accountant or financial adviser.

We make every effort to provide accurate and timely information but cannot guarantee that information published on any day will be accurate or timely the following day. All information is provided “as is” with no guarantee of completeness or accuracy.

Find support for your startup

Starting a business can feel lonely and overwhelming. One of the most effective ways to move your business forward is to ask for help. Mentors, peers, competitors, suppliers, vendors, other business owners, business consultants and official business startup support organisations can all help you with developing your business regardless of what stage you are at in the startup cycle. Some statistics show that mentored startups grow 3.5 times faster and raise 7 times more money than non mentored startups. By not asking for help, you are slowing down your business progress. Simply asking for help is a powerful form of networking, and you will be amazed at the level of support that is out there once you push through your comfort zone and ask for help. Some official organisations that can help you with developing your business here in Iceland are listed below:

Personal ID (Kennitala)

Anyone starting a business in Iceland must have a personal ID number (kennitala) which is a ten-digit number. The ID number serves as a gateway to Icelandic society and is used for tax, insurance, car registrations, bank transfers etc. It is also possible to run an individual company using your personal kennitala under certain low income expectation circumstances. When registering any other business structure, a new company kennitala will be created.

A foreigner from a country outside of the EEA / EFTA who plans to stay in Iceland for more than three months, must have a valid residence permit.

Citizens from the EEA / EFTA states do not need a special residence permit to stay in Iceland, but must make an application to Registers Iceland if they are planning on staying for longer than 3 months. Note that you will have to go to Registers Iceland or the nearest police office and present a passport and other mandatory documents before the application can be processed. If you are planning to work in Iceland for less than 3 months you can fill out an application for a temporary kennitala.

Electronic Certificate (Auðkenni)

It is worth mentioning here that an electronic certificate (auðkenni) is a requirement for many basic day to day living circumstances in Iceland. This is a security measure that uses your kennitala, mobile phone and bank account to create an electronic proof of ID. As well as making digital payments or using government services online, you will require an electronic certificate when registering your business activities with the Director of Internal Revenue. When you make any transaction requiring an electronic certificate, you will receive a message on your mobile phone prompting you to enter a pin number to complete the transaction. Providing you have a kennitala and mobile phone, the electronic certificate system will be set up in branch when opening up your bank account.

Licensing and permits

Operating licenses are required for businesses in certain sectors; for example manufacturing or hospitality, and are granted on fulfillment of clearly defined rules. Details of regulations, monitoring and inspection agencies etc. vary from one sector to the next but generally speaking, as a member of the EEA, Iceland operates its regulatory environment on the same principles as the European Union.

It is necessary to check whether licenses and / or registrations are required for the business activity in question. Information and applications for operating permits are available on the websites of the relevant ministries, institutions and local governments. It is advised that you check as soon as possible whether licenses are required as it can take some time to obtain them and you may need to provide additional documents to prove the relevant qualifications necessary to grant the license. You will have to apply for an operating licence from the relevant organisation dependent upon the industry you will be starting your business in. You may even need to go to several different places to obtain permits.

Below is a brief overview of the most common organisations that issue operating licenses:

Directorate of customs
General information on rules and regulations regarding importation of goods to Iceland
Skatturinn
Tollur
Government Offices in Iceland
Information, services and documents from Government Offices
Stjórnarraðið
The Environment Agency of Iceland
Promotion and protection of natural resources and public welfare. Ensuring a healthy environment and safe consumer goods
Umhverfisstofnun
Icelandic Occupational Safety and Health Administration
Prevention of accidents and health damage in the workplace
Vinnueftirlitið
Ryekjavik Health Authority
Hygiene, food and pollution control
Heilbrigðiseftirlit Reykjavíkur
Directorate of labour
Responsibility for public labour exchanges, Unemployment Insurance Fund, Maternity and Paternity Leave Fund, Wage Guarantee Fund and projects connected with the labour market
Vinnumálastofnun
Icelandic Pension Funds Association
General information on pension funds, rights and services
Lífeyrismál
Internal Revenue Directorate
General information on taxes, tax services, tax forms and tax billing
Skatturinn
Ministry of Finance and Economic Affairs
Responsible for the state’s financial and economic affairs, for which it formulates policy and prepares plans and budgets
Skatturinn
Fjármála og efnahagsráðuneytið
MAST – Icelandic Food and Veterinary Authority
Promotes the health and welfare of animals, plant health and the safety and quality of food
MAST Matvælastofnun
MATIS
Provide partners with support for increased value creation, food safety and public health
MATÍS

The table below is an example of the different agencies that need to be engaged when establishing a restaurant with a Private limited business structure. You can download an Excel spreadsheet with a detailed breakdown of operating licences and requirements per industry here.

ProcessNecessary steps and actionsResponsible agency
Starting a businessAnyone starting a business in Iceland must have an electronic ID (Kennitala).Registers Iceland
www.skra.is
The establishment of a private limited company can be done digitally using a digital certificate related to the ID number of the applicant. Electronic forms are available that can be filled out and sent to the Directorate by email when registering a new company. Directorate of Internal Revenue
www.rsk.is
Register a trademark (Optional) The Icelandic Intellectual Property Office www.hugverk.is
Establishing a restaurantIf a new restaurant is being set up a building permit is necessary before the renovation or building starts. Municipality – building and planning division
www.samband.is
All restaurants need to have an operating licence issued by the local district commissioner. This licence is dependent upon a licence from local health authorities. These two authorities work together and if an application is sent to one authority the other one is also notified. District Commissioner www.syslumenn.is
District Commissioners exercise the executive power and administration of the state, each in its own district.
A licence from local health authorities is also necessary for all restaurants. As described above it is dependent upon an operating licence from the district commissioner. The process for applying for these licences can be done simultaneously and the authorities share information with each other in the process. Local Health Authorities
www.shi.is
Reviews and comments are needed in the licence procedure described above from different authorities. Municipality (planning and building divisions), Police, Fire department, Occupational Health and Safety Authority

Business structures and how to register them

The business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits. Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability. 

The main business structures in Iceland are described below. Clicking on a business structure header will take you to a new page describing how to register that business structure with the Director of internal revenue, and provides links to download the relevant forms.

StartupTools is a website with free resources for startups. You can download fair and standardized investment documents (term sheet, subscription agreement and shareholders’ agreement) as well as founders’ agreement, employment agreements and more. The documents contain English translations of Icelandic text and thorough definitions, descriptions and comments on words and expressions to help you to understand and complete these documents yourself.

Individual Company
A company that is run on an individuals own personal kennitala is called an Individual company. This form of operation is suitable for personal operations that are either intended for the short term, expect minimal annual income or involve little risk. The owner’s responsibility for the obligations that the company makes are direct and unlimited. There is no need to submit capital at its establishment and the registration fee is nothing unless the individual owns the business with a special name. If using a special name, the business must be registered in the Companies Register.
Registration cost: ISK 0
Minimum share capital: ISK 0
Einstaklingsfyrirtæki
Private Limited
A private limited company may have one shareholder and the minimum share capital is ISK 500,000. There is no limit on the share capital or the number of shareholders, and this form of company is suitable for small and large companies. The vast majority of businesses registered in Iceland are Private limited companies.
Owners’ liability is limited to share capital. The registration cost ISK 131,000 can be deducted from the ISK 500,000 minimum share capital that you have to deposit.
Registration cost: ISK 131,000
Minimum share capital: ISK 500,000
Einkahlutafélög (ehf.)
Limited Companies
The share capital of this form of business shall be divided into at least two parts and shall be at least ISK 4,000,000. The shareholder form is primarily considered to be suitable for larger and more extensive operations, with the objective of being listed on the stock exchange.
The liability of the owners is limited to their share in the company.
Registration cost: ISK 256,000
Minimum share capital: ISK 4,000,000
Hlutafélög (hf.)
Partnerships
To start a Partnership Company, the founders need to be two or more owners, whether individuals or other legal entities. Responsibility of all owners is direct and unlimited. Direct liability refers to the position of creditors in such a way that they can therefore go directly to the personal property of the owners. Undivided ownership of the owners actually means that every owner of the company guarantees all its debts and where there is an unlimited guarantee it means that the owners do so with all their assets. The main advantages of these forms of association are that initial costs are not high and the legal environment is fairly simple, the company is easy to liquidate, there are sufficient resources to withdraw funds and taxation is somewhat favorable if profits are generated. Requires the owner’s responsibility, but it is very comprehensive as it covers the obligations that the co-owners make in the name of the company.
Registration cost: ISK 89,500 + ISK 5,000 to set up a new social security number for the partnership
Minimum share capital: ISK 0
Sameignarfélög (sf.)
Syndicates / Co-operatives
Co-operative societies are registered with the corporate register of the Director of Internal Revenue. Initial data must be submitted to business registers and registration fees paid. A social security number will be created when registering a company. The ÍSAT number (Icelandic Industry Classification) is registered with an organization according to information from the founders about the company’s main activities. The founders and later members of a partnership can be legal persons and legal entities. It is compulsory to enter into a written association agreement on listed companies and the agreement must be signed by all the founders and those who later join the company. If the Board of Directors is elected, the Managing Director and the auditors or inspectors are elected, a certified copy of the minutes of their terms of office shall be included, together with their declaration that they will take up the position. The company contract must state whether the company is independent or an independent taxpayer. Attention is drawn to the fact that a couple alone or with their children cannot form a joint venture or partnership that is an independent taxpayer.
Registration cost: ISK 256,500
Minimum share capital: ISK 0
Samlagsfélög (etc.)
A self-employed business enterprise
Private business organizations are listed in the corporate register of the Internal Revenue Service. The minimum initial capital is ISK 1,000,000 and all initial capital shall be paid upon registration. Initial data must be submitted to business registries. The turnaround time for filing a self-employment institution is generally about ten to twelve business days from the date of submission of data to business registers, if the submitted data is satisfactory and payment (or payment receipt) is included with the submission.
Registration cost: ISK 131,000
Minimum share capital: ISK 0
Sjálfseignarstofnun í atvinnurekstri (ses.)
Branches of foreign companies in Iceland
Branches of foreign companies are registered with the company register. The necessary data must be submitted to the business register and the registration fee paid. The turnaround time for filing a foreign company’s branch is generally about ten to twelve business days from the date the data is submitted to the business register if it is satisfactory and a payment (or payment receipt) is included with the data.
Registration cost: ISK 256,500
Minimum share capital: ISK 0
Útibú erlendra félaga á Íslandi

Registration of companies forms (ehf./hf./sf./slf./ses.)

RSK 17.20Notice of establishment of a limited company (hf.)
RSK 17.21Notice of establishment of a private limited company (ehf.)
RSK 17.22Notice of self-employment in business (ses.)
RSK 17.24Announcement of the creation of a joint venture
RSK 17.25Notice of registration of the business name of the individual company
RSK 17.26Notice of establishment of a partner company
RSK 17.27Real Owner Announcement ( New for Registration Only ) – ( english )
RSK 17.28 Notice of real owners – NGOs and other similar parties

For a list of all forms on the RSK website please click here.

The process for registering a private limited company

The table below details the typical procedures, time and cost requirements to register a small-to medium-sized Private limited company online to start up and formally operate in Iceland. Although the registration should only take 4-5 days to process, those who start a business must report it to the Directorate of Internal Revenue, no later than 8 days before the start of operations.

StepProceduresTime to completeAssociated costs
1Search for company name
Agency: Register of Enterprises

You need to verify that the business name you want to register for your business is free and does not already exist.

Enter the company name of the company to be established, its legal domicile and founding date. The computer system will check to see if there are any company names or trademarks on the list that could possibly prevent the listing of the new company. This is a simple search only and RSK employees will look more closely at the company name when the data is processed. Although there is no indication of possibly too similar a company name, it does not have to mean that the company name will be approved. Foreign extras can be registered but it must be the direct translation of the Icelandic main name of the company.

You can also register a special postal address if the mail is not to go to the company’s domicile. If the address is in the home of another company or person, it is good to register with another party (reach out). The identity number of the person / company must be entered.
Less than one day (online procedure)no charge
2Apply for registration with Register of Enterprises
Agency: Register of Enterprises

To register your business with the Register of Enterprises, you must first register for electronic identification.

Once you have your electronic ID you can register your Private limited company by logging in to your RSK account.
Click on General from the top menu and you will get a drop down menu. Click Sign up under the Business header of the drop down menu and you will be taken to an online form which will prompt you with the relevant business information details that you need to fill out. RSK have created a video of the process (in Icelandic) that you can watch here.

In order for the registration to be approved, you must submit information about the company’s owners. This is done by filling out a separate form RSK 17.27. You submit the completed form with a 5 digit application number that you are assigned and prompted with on the opening page of the application form. The RSK processing form must be submitted with the 5 digit application number or scan it and send to rafraenn@rsk.is.

The online business registration application will take you through a series of pages to fill out information related to the company being established.:
1. Enter details regarding founders and shareholders
2. Enter details about the business purpose
3. Enter additional details such as share amounts and voting rights
4. Upon completing the registration, the company’s founding documents are automatically prepared by RSK
5. Once the initial documents have been approved they will be saved and emails will be sent to all parties who need to sign the documents electronically
6. They will receive a message to their phone asking them to enter their pin number to complete the registration
7. Payment of registration fees and notification fees are sent to your bank account

The company’s founding documents are automatically prepared by RSK, but you can also upload your own initial documents.
The founding documents consist of the notification, articles of association, charter or founding order by number of founders and founding or founding meeting by number of founders.

The register is also in charge of advertising the incorporation notice in the Official Gazette, the official journal. The total registration fee is ISK 131,000 which includes the company identification number (ISK 5,000), and the fee for publishing the notification in the Official Gazette (ISK 1,000).
1 dayno charge
3Deposit initial capital in bank account
Agency: Commercial Bank

Claims for payment of registration fees and notification fees are now sent directly to the registrar’s home bank and payment registration fees are only carried out in this way. The ISK 500,000 minimum share capital must exist and be in the bank account of one of the founders of the company until the company is registered and a business bank account has been opened. The registration fee payment ISK 131,000 can be deducted from the ISK 500,000 minimum share capital, and the remainder of the minimum share capital can be withdrawn and used as soon as the company has been registered and received the new company kennitala.

The registration process should take between 4-5 days to complete once the payment has been made. The registrant no longer has to transfer the registration fee to the Director of Internal Revenue. If a registrar does not have a home bank, you can select another payer at the last stages of registration.

Once all the documents have been signed and the registration fee paid, the data is submitted to the employees of the RSK business registers who either record the data or request corrections if necessary.
Between 4-5 daysISK 131,000
4Obtain a VAT number
Agency : Directorate of Internal Revenue

Exempt from the obligation to register for VAT are those who sell labor and services that are exempt from VAT and those who sell taxable goods and services for 2.000.000 ISK or less in each twelve-month period from the beginning of their business activity (was 1.000.000 ISK before January 1st 2017). The registration duty does not apply to employees.

Applicants can notify the Directorate of Internal Revenue online by logging into www.skattur.is with their web key and filling out form 5.02 (download English translation guidance instructions for completing the form here). The signed form and notification can also be sent via email to the Register of Enterprises rsk@rsk.is or by visiting the offices of the Director of Internal Revenue at Laugavegur 166, 105 Reykjavík.

The Director of Internal Revenue will then assign the applicant company with a VAT number which the company shall use in it’s economical activities.

Notify tax authorities of employment of workers
Applicants can notify the Directorate of Internal Revenue online at the same time using the same form 5.02.

Withholdings from employment income are covered under the PAYE system. An employer has a monthly reporting obligation, as well as a withholding obligation related to income. In addition, employers are obligated to pay an insurance tax / social security tax. In the 2020 tax year, the insurance tax rate is a total of 6.35% . Of this, the insurance premium itself is 4.90%, the employment insurance premium is 1.35%, and then a supplement is added to the Guarantee Fund (0.05%) and the market fee (0.05%).

Employers are required to calculate and deduct taxes from all salaries and wages paid out to employees. Taxable income includes, for example cash payments, wages, fees, sickness allowance and benefits in kind. Employers are also obliged to deduct mandatory (and voluntary) fees to workers unions, pension funds as well as to pay wage-related expenses.

There is an interactive payroll calculator in English where employers can calculate anything regarding salaries and compensations of employees.
Less than one day (online procedure)no charge

 

Income tax & VAT (Value Added Tax)

Income tax is a tax imposed by government on income generated by a businesses (corporate income tax) or individual (personal income tax). The taxable base for corporate income tax is net income, i.e. income after deduction of operating expenses. Corporate income tax varies by business type:

Legal formIncome tax %
Private limited companies and limited companies20.00%
Partnerships and joint ventures36.00%
Self-employed lower level36.94%
Self-employed individuals higher level46.24%

Business income tax base

In business operations, the income tax base is found by adding up all the income in the year in question and deducting from that income all deductible expenses in the same year. If the difference is positive, it is the income tax base of the business. If charges are equal or higher, no income tax is calculated.

For example: 

IncomeAmount ISK
Income from main business 10,000,000
Other income 1,000,000
Total revenue 11,000,000
ExpenseAmount ISK
Supply3,000,000
Salaries and related expenses4,000,000
Real estate operations1,500,000
Other charges1,000,000
Interest rates500,000
Total charges10,000,000
Profit (income tax base)1,000,000

Difference in income tax according to business structure

Business structureIncome tax amount ISKIncome tax %Income tax ISKProfit after taxExplanations
Limited companies1,00,00020.00%200,000800,000If shareholders receive a dividend, they pay a 20% capital income tax on the dividend.
Co-operative Society Samlagsfélag 1,000,00036.00% 360,000 640000No tax is paid on the company’s owners’ withdrawals
Individual company
Self-employed persons lower level <834,707 ISK in a month**
 1,000,00036.94%369400630600Bracket. No tax is paid on the owner’s withdrawal from the business
Individual company
Self-employed persons, higher levels> 834,707 ISK per month **
1,000,00046.24 462400 537600 No tax is paid on the owner’s withdrawal from the business 

 ** The level of taxation of self-employed persons is determined by the person’s calculated remuneration (monthly salary) in the operation and the profit for the year divided by month.

It is worth noting that if you set up a private limited company as an individual, you will pay a personal income tax on the salary that you pay yourself from the business, as well as the corporate income tax of 20% that you will pay on the net profits generated from the business. Personal income tax bands:

For the income year 2020 the rate of income and municipal tax is calculated in three brackets: Percentage
ISK 0 – 336.916 per month 35,04%
ISK 336.917 – 945.873 per month  37,19%
Income exceeding ISK 945.873 month 46,24%

VAT (Value Added Tax)

VAT is a tax paid by the end users of a product or service and is not part of the income and expenses of the companies that have a VAT number.

Value added tax companies collect this tax for the Treasury from the consumer and pay it back to the Treasury. They thus carry out a certain tax collection for the Treasury and may incur the cost of work on the collection.

The value added tax is in most cases 24% but in the following cases it is 11%

  • Rental of hotel and guest rooms and other accommodation services.
  • Utilization of radio and television stations.
  • Sales of magazines, newspapers and national and regional newspapers.
  • Sales of books, both original and translated, as well as audio recordings of reading such books.
  • Sales of hot water, electricity and oil for heating houses and pool water.
  • Sales of food and other food products defined in the Appendix to the Value Added Tax Act.
  • Access to road structures, such as tariffs for access to Hvalfjörður tunnels.
  • Sales of CDs, recordings, magnetic tapes and other similar media with music but not image.
  • Sale of condoms, multi-use diaper and diaper liner
  • Travel agencies and migration activities that business is not exempt from value added tax.

Value added tax is calculated on top of the price of a product or service that the operation in question has decided to use. The example below shows the breakdown of product prices.

DescriptionAmount ISK
Sale price of goods / services of a company1,000
Value Added Tax is collected for the Treasury240
Total price paid by the consumer1,240

Employer payroll

The taxation system in Iceland is the PAYE system (Pay-As-You-Earn). Taxes are deducted from all taxable incomes and consist of income taxes and municipal taxes normally paid on a monthly basis. As an employer, you must pay withholding taxes and other wage related expenses such as pension payments and union payments. The screen-grab below will give you an idea of your wage related expense responsibilities as an employer. This interactive payroll calculator can help you calculate anything regarding salaries and compensations of employees.

You can get more detailed information regarding taxes and fees on the skatturinn website including information on environmental and resource taxes, payroll, capital income tax and income tax.

If you plan to do your own bookkeeping and accounting, you should familiarise yourself with accounting and revenue recording and tax returns.

How to start a Business – Overview

If you’re wondering how to start a business, there are some key decisions you will need to make before starting up. As well as your product or service, you may want to choose your business’ name, its structure and how you are going to run it. It is also important to think about how you are going to attract customers and where you will get the money for starting up.

Before you start your business

You may need to research and develop your basic business idea, work out what you are going to name your business and decide on what form it will take. It is important to think carefully about your product or service, audience and what makes you stand out from the crowd.

At this point, it is worth thinking about how you are going to finance your start-up and what effect it will have on your personal finances while waiting for profits to show.

Start-up options

There are a number of options available to you when starting a business. You might want to start your business full-time or part-time, or even in your spare time. You could choose to work from home or at separate premises, to buy an existing business or to invest in a franchise, depending on your experience, lifestyle and resources.

Assess your skills and see where you might need some extra development or support. Innovation Centre Iceland offers free events covering a wide range of business issues, including taxes, marketing, networking and business planning.

Finance for start-ups

Money is necessary for starting your business and to keep it going until your customers pay you. You will need to cover your personal expenses until the business can support you.

There are many different routes to financing your startup including:

Personal savingsA common method of providing seed capital for new businesses is investing your personal savings in order to get the company off the ground. You may have some personal assets that you could sell, or use a salary from an existing job whilst working on your business part time to begin with.
Friends & familyCan provide loans and support in the early stages when accessing funding can be difficult. This can be a really effective way to gather seed capital, but there is a risk to future relationships if things don´t work out the way you plan with your business. Make sure that you have a conversation where you clearly explain the risks and and come to an agreement on the loan repayment structure.
BanksThere are various loan options for startups. The two main categories of loans are secured and unsecured loans. It may also be possible to use an existing overdraft facility on your current account as seed capital.
Secured loans – use company or personal assets such as a property or car as security based on the amount borrowed. This can then be repossessed by the bank if you default on loan repayments.
Unsecured loans – do not require a form of security and are issued based upon your creditworthiness. These are riskier for lenders, so usually come with higher interest rates. Credit cards and personal loans are examples of unsecured loans.
Factoring or Invoice financing – can be a good option if you have started trading and have outstanding invoices. Banks may loan up to 85-90% of the value of outstanding invoices which can then be paid back once you have received the payments.
Business cash advances – involve businesses receiving advanced payments based on expected future revenue. It is repaid at an agreed percentage of further card purchases being paid back to the lender.
Arion Bank, Íslandsbanki and Landsbankinn all offer companies a wide range of services and various financing options.
Svanni  is a women’s loan guarantee fund that provides credit insurance to women-owned companies and is in collaboration with Landsbankinn on loan repayment. Only companies that are majority owned by a woman can apply for these loans and credit insurance.
Venture capitalYou can pitch your business to Venture Capital firms to gain financial support in exchange for equity (shareholding) in your company. This brings the benefits of potentially gaining investors who can provide advice and expertise for your business.
Some Icelandic venture capital providers:
New business venture fund – is a state owned investment fund intended to strengthen and develop the Icelandic venture capital market along with promoting startups and business in Iceland thus encouraging economic growth
Eyrir invest – is an international investment company that focuses on investments in industrial companies that have the potential to become true global leaders
Frumtak ventures – invests in early stage innovative companies that are post seed and show great potential for growth. Their emphasis is on investing in companies where growth and sales in foreign markets are the primary objective. They do not specialize in any particular industry
Brunnur ventures – invests in Icelandic startup companies with an emphasis on innovation and growth with scalable business models and extraordinary entrepreneurial talent. The fund also has an emphasis on companies within software, internet, high-tech, biotech, energy technology, marine technology and food manufacturing that has a competitive edge with patentable technology or proprietary know-how
Thule investment – Invest in companies that have developed a product or service that is ready for marketing and has the potential to leverage resources to grow rapidly
Virðing – operation of domestic and foreign mutual funds, investment funds and professional investment funds
Angel InvestorsAngel investors, often known as high-net worth individuals, want to invest their personal money and make their own decisions about investment opportunities. They can often provide less finance than a venture capital firm, but have the potential to back riskier prospects. Angels can also bring valuable ideas and advice to your business. When looking for this type of financing, angel investment networks and syndicates are a good place to start.
Corporate InvestmentsSimilar to Angel Investors, large corporations can choose to invest in other businesses. They can often invest more than individual angels due to the higher worth of companies compared to individuals.
CrowdfundingThere are various forms of crowdfunding with the most relevant for funding small to medium-sized enterprises (SMEs) including, peer-to-peer lending, peer-to-business lending, reward-based and equity crowdfunding.
Peer-to-peer – lending involves investors lending money to an individual for a fixed interest rate.
Reward-based – crowdfunding allows you to receive funds in exchange for giving your investors a reward, such as a product sample or event.
Equity crowdfunding – is similar to rewards-based but instead of providing capital for rewards, you offer shares (equity) in your company in exchange for investment. Equity crowdfunding enables everyday investors to invest alongside professionals and venture capital firms, with hope for a greater return.
Some crowdfunding providers:
Karolina Fund
Indiegogo
Kickstartrer
GoFundMe
Patreon – for artists
GrantsGrants are usually publicly-funded schemes which offer cash awards, free equipment and tools or reduced costs for using vital resources to entrepreneurs and small business owners. Depending on the grant scheme, you often won’t have to pay interest, give away equity, or even pay it back at all. Grants are usually awarded by organisations to address a specific issue or have a positive impact on peoples lives, a specific industry, the economy or job creation, and the grant money awarded must usually be used as detailed in your grant application. It is also quite common for the grant money to be released in stages upon successful completion and review of project milestones
Direct grants – are usually a cash award given to a business to carry out a specific project. Some direct grant schemes will require you to match the grant amount in money you raise by yourself – so, effectively, you’ll usually put up 50% of the cost of the project. There will also likely be regulations involved and agreements to be set in terms of how you can spend the grant money.
Resource and training grants – can help startups and SME´s to access resources, skill sets, expertise or access to the facilities and equipment they need to complete their project
Tax relief – government run schemes such as corporation tax relief incentives to help reduce outgoings when establishing your business
Rannís – The Icelandic Centre for Research administers the main public competitive funds in the fields of research, innovation, education and culture in Iceland. RANNIS cooperates closely with the Icelandic Science and Technology Policy Council and provides professional assistance in the preparation and implementation of the national science and technology policy.
RANNIS administers competitive funds in the fields of research, innovation, education and culture, as well as strategic research programmes.
RANNIS coordinates and promotes Icelandic participation in European programmes such as Horizon 2020,  Erasmus+ and Creative Europe

Creative thinking and planning your cashflow can save you money and make it less costly than you may think to start your own business. It is highly recommended that you research into your specific business activity sector when looking to raise finances. There are often industry specific grants, funding or investment opportunities dependent upon the product or service you are creating, the business activity area you will be operating in or the business lifecycle stage that you are at.

There are advantages and disadvantages to all of these methods of raising the capital needed to start your business. Personal circumstances and the nature and scale of the business startup lead people to use different combinations of these financing options. For example, if you are unemployed, don´t have a strong credit rating, have none of your own money to invest in the business or any assets to secure a loan against, it is less likely that a bank will loan you money. In these circumstances, the person starting their business will likely use a combination of personal finances and loans from family and friends to get their business started. Banks want to feel confident that you will be able to repay them the money that they loan to you, and Investors want to feel confident that they will see a return on their investment.

A bank is likely to rate your application on at least three factors:

  • Management – your talents as an operator, including your talents to manage.
  • How viable your business idea is – the market for your idea or service, the cost of your business and your budgets.
  • Risks – the risk the bank takes in not getting their money back. Keep in mind that if successful, the bank will not share the proceeds with you, but may lose if things go wrong. In the minds of bankers, any new business is risky. Because of this, the bank wants to secure itself as best as possible before loaning money.

Credibility – sometimes people are trying to start their new business in a field in which they have no experience. This doesn´t mean that you will not be able to make a success of your business. It does mean that you won´t have the same initial credibility as someone else who has worked in the field for many years and is trying to start their own business in that field. Starting small, profitable and heavily investing your profits back into your business for the first 12 months before looking for a loan or investment can be a very effective way for you to start your business, learn about your industry and how to run your company successfully without having the pressure to start paying off a loan or answering to an investor straight away. It also allows you to figure out exactly why you need a loan and where best to invest that money to help your business grow. It will be a very different conversation that you have with investors or banks when you can show your trading accounts for the past 12 months (especially if your business is profitable or breaking even), explain exactly why you want the loan or investment, and show clearly how that money will help your business to grow. You now look like a credible person with a credible business worth investing into. If you can present a very credible business plan, with a realistic financial forecast and convey that you are a credible person to execute the business plan, then you have a much stronger chance of attaining a loan, finance or funding.

Financial statements

There is often a lot of confusion around the different types of financial statements that exist and why they are used. The main financial statements to be aware of when starting your business have been described in brief below and you can download an excel spreadsheet to use for bookkeeping and generating financial statements here:

Personal survival budget – is a document that you create based on your average monthly income (salary, benefit payments etc) minus all the costs and expenses you would incur in a typical month (rent, utility bills, grocery bills, entertainment etc). This is your personal budget and not related to the business that you intend to start. You create this document to help you understand how much money you will need to make from the business in order to be able to support yourself in the early days. It can also help you to figure out where you could possibly make lifestyle changes in order to start saving money to help you fund your business startup.

Cash flow forecast – is a document that you create based on best estimates of your expected income (any money paid into the business) and expenses (any money you spend on your business) over a fixed period of time into the future. Cash flow forecasts typically cover a 12 month period, but can be forecast for any duration of time ie. a week, a month or 5 years. There are many reasons why you will use a cash flow forecast dependent upon whether you are pre-startup or already running your business.

Pre-startupHelps you to understand your expenses and how many sales you will need to make in order to break even against your known business expenses
Banks or investors will want to examine this before making a loan or investing
Post-startupHelps with planning how much cash you will need at different times in the future
Shows whether your business is meeting expectations by comparing actual figures with estimates
Helps with budgeting for equipment purchases or employing new staff members
Allows you to simulate best and worst case scenarios and plan accordingly for them
Identify if you need to take out a loan to cover a quiet business period

Balance sheet – reveals the financial status of a company at a specific point in time. The statement shows what the company owns (assets), how much it owes (liabilities) and the amount invested in the business (equity).

AssetsSomething a business owns or controls (e.g. cash, inventory, plant and machinery, money owed for products or services etc)
LiabilitiesSomething a business owes to someone (e.g. creditors, bank loans, bills to pay etc)
EquityWhat the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. Equity therefore represents the difference between the assets and liabilities.

Profit and Loss Statement (P&L) – reports the company´s financial performance in terms of net profit or loss over a specified period and includes information on income and expenses. Net profit or loss is calculated by deducting expenses from income.

IncomeWhat the business has earned over a period (e.g. sales revenue, dividend income, etc)
ExpenseThe cost incurred by the business over a period (e.g. salaries and wages, depreciation, rental charges, etc)

Tax and legal issues for start-ups

You should choose the right business legal structure to suit your circumstances and register it with the RSK tax office. Should you choose the limited company route you are required to register with the Register of Limited Companies.

It is necessary to check whether licenses and / or registrations or permits are required for the business activity you are starting. You will have to apply to the relevant organisation and have approval from them before starting your business activity. You can download an Excel spreadsheet with a detailed breakdown of operating licence and requirements per industry here.

It is necessary to check what business insurances are required for your business activity and make sure you have them in place before starting your business.

Some common business insurances to be considered
PropertyMandatory Fire insurance
Commercial Property Insurance
LiabilityPublic and Product Liability
Employer’s Liability
Directors & Officers Liability
Professional Indemnity
Commercial liability insurance
Business interruptionOperation Interruption Insurance
Employees and Leaders Life and Critical Illness Insurance
Accident Insurance for Employees
CargoTransport Cargo Insurance

You may need to seek specialist advice on intellectual property protection to cover copyright, trade marking, design registration or patenting. Intellectual property is a notoriously difficult area to navigate without specialist assistance. A good starting place is to contact ISIPO the Icelandic Intellectual Property Office.

It is vital that you keep accurate records of your business income and expenses and that you pay your withholding taxes and VAT in a timely manner.

A list of some business formation lawyers and law firms in Iceland if you are seeking legal counsel.

Links to detailed translations of some relevant official government Acts
Income Tax Act
The Value Added Tax Act
Act on the Withholding of Public Levies at Source
Act on Withholding of Tax on Financial Income
Legislation

Business planning for startups

Business plan

A business plan is a written document that describes in detail how a business is going to achieve its goals from a marketing, financial and operational viewpoint. You should plan your business carefully before you start up. The header sections in a business plan can be thought of as a checklist of questions you need to ask yourself to reassure you that your venture will work. Writing the plan down helps to clarify your thinking, test the feasibility of your business idea, give your new business the best chance of success and to secure funding or attract investors. It helps you to understand where you want to get to and how you are going to get there.

There are endless business plan formats that you can download with guidance on how to fill them out. It is a good idea to search online for a business plan template that you like and to work your way through that. A lot of organisations will have their own business plan template that you will need to complete if applying for grants or funding through them. If you have already completed a generic business plan, it will be a lot quicker and easier to tailor your business plan to the relevant application template that you need to work on. No two business plans are the same, but they all contain similar header sections. Some of the most common and important header sections are described in the table below:

Header sectionDescription
Executive Summary An executive summary is a brief introduction and summary of your business plan. It should describe your business, the problem that it solves, your target market and financial highlights. The executive summary is written last, after you have completed all the other sections of the business plan and should include:
Mission statement – a brief summary of the business and its objectives
Company information – introduces the founders, with their biographies
Growth projections – outlines and quantifies the earning potential of the business
Products or services – describes what products and services are offered by the business
Financial information – outlines current capital for the company, including any investors
Company Description The company description outlines vital details about your company, such as where you are located, how large the company is, what you do, and what you hope to accomplish. The company description should include:
Mission Statement – It’s a short statement that tells why the company exists and what its guiding principles are
Goals and Objectives – Describe your business goals or long term plans and the objectives or steps to achieve those goals. If your overall goal is to increase brand awareness, one objective might be to increase blog traffic by 10%.
Business Philosophy – It’s the fundamental principle for which your company is formed
Industry – Describe the industry you work in, and your business’ position within the industry including the growth prospects and the opportunities it presents
Competitive advantage – Describe the strengths and skills of your company and the advantages it has over its competition
Legal Structure – Specify your business structure and why this business structure works best
Target Market – Give a brief description of your target market and how you plan to approach it
Closing Summary – Write it as an introduction to create the first impression, so that your target audience wants to know more about your business
Market Analysis A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation
Organization and Management Here you focus on the structure of your business. How many owners does the company have? Who will operate the business? How are responsibilities delegated? What will your promotion and incentive structures be? Many people use charts and graphs to give a visual representation of these factors.
Goods and Services In this section you give a more detailed description of your offerings. Describe how they differ from your competitors’ products and the benefits they offer your customers.
MarketingYour growth strategy is described here. How do you intend to increase your business in the near and distant future? Discuss expansion plans in this section, as well as plans to market to prospective clients. What marketing media will you use? What’s your budget? Do you have an offline plan as well as an online plan?
Financial Projections Here you express the financial goals for your business. Outline how the marketing and sales ultimately equate to a profit. Basically, you make earnings and cost predictions in this section. This is another part of the plan where graphical representation of the information can really help. You can download an excel spreadsheet to use for bookkeeping and generating financial projections here.

Pitch deck

A pitch deck is a presentation that usually contains 10-20 slides. It is a highly visual document. The presentation is normally sent to investors as a pdf to get them interested in taking a meeting with you, or used as a visual aid during a live presentation to investors or other audiences like pitch competitions. It is a very effective tool for conveying your business concept, the value of your business, simplifying complex ideas, differentiating your business from competitors and telling the story behind your business in a shorter, more visual format than a business plan. It will normally be created after you have completed your business plan.

A pitch deck is meant to share information about your business, who it serves and why, the size of the market, your competitive advantage and how you will win in that space. It normally lays out clear go to market strategies and gives some detail on future opportunities. It describes your knowledge of the industry and your plan for launching and growing your business. It lets an investor understand where you are, where you are going and helps them to decide if they want to help you get there. The main goals of a pitch deck are to secure an in-person meeting or to kick off the conversation with an investor about joining your funding round. It is also an effective tool for attracting potential Co-Founders.

Pitch decks are particularly relevant in the tech industry.

Pitch DeckBusiness plan
What is itA short slide presentation summary of your businessA highly detailed text description of your business
Length10-20 slides5 -100 pages
DesignHighly visual with minimal textHighly text based with minimal visuals.
When to use Seeking equity funding from venture capitalists, angel investors, friends or family
Networking with investors
Pitch competitions
Seeking Co-Founders
Applying to business accelerators
Seeking any sort of financing from a bank
When raising larger sums of money it will be requested to conduct due diligence
When an interested investor requests it
To test business feasibility
As a reference guide to see if you are still on track

Finding and keeping customers

It will serve you well to have a clear understanding of what an ideal or typical customer looks like. You may also need a way of identifying groups of customers with a similar profile. You can complete a value proposition canvas to help ensure that your product or service is positioned around what the customer values and needs.

Understanding target customers and their needs is a key aspect of your market research. Developing a marketing plan and a sales plan will help you develop strategies to reach these customers through promotional activities while helping you to budget for the cost.

The most cost effective and powerful way of advertising and marketing your business is to set up a strong online presence and create a powerful online advertising and marketing campaign. There are endless online resources to help you with this. Some relevant topics to search for include optimising social media profiles (on LinkedIn, Twitter, Facebook, Instagram and YouTube), developing a social media strategy, building an online community and creating online content that will engage followers’ attention. It is worth doing a search in your relevant industry for guidance in this area.

Once you have gained new customers, it will be possible to build a long-term relationship with them to ensure repeat business. It’s significantly easier and cheaper to do business with existing profitable customers than to find new ones.

A focus on customer service will help retain your most valuable customers. Customer feedback on your performance will help you make informed decisions when making adjustments to your offer. It also increases the likelihood that your customers will talk about you positively to others and make referrals.

Starting up: common mistakes and how to avoid them

Read some useful information on common mistakes when starting up and how to avoid them.