Foreign companies wanting to hire staff and run payroll in Iceland can open a subsidiary entity as a limited liability company, an Einkahlutafélag, or Ehf. However, this involves lengthy registration procedures under the Private Limited Companies Act. The subsidiary will be a separate legal entity independent of the parent company. It must be registered with the Iceland Directorate of Internal Revenue and Customs (Skatturinn), the Register of Limited Companies and Registers Iceland to receive the official 10-digit ‘System ID’ number (kennitala, or kt).
Expanding overseas is a significant step, especially for companies opening a legal entity in their new territory. If the move fails, companies face the extra expenditure and stress of closing the business, selling property, and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory, maybe thousands of miles overseas. The sensible alternative is to use a Professional Employment Organisation (PEO) and Employer of Record (EOR) such as Bradford Jacobs to locate the finest local talent and administer your payroll in Iceland – speedily and risk-free. Your company will be up-and-running in days rather than weeks or even months.
Specific advantages for a foreign company opening a private limited liability company in Iceland include that the subsidiary has an independent identity under Iceland’s Private Limited Companies Act. The parent company is not usually responsible for the subsidiary’s debts or liabilities. Generally, the subsidiary is responsible for its debts and liabilities, while shareholders are liable only to the limit of their share contributions.
As a local resident company, the subsidiary is liable for tax on its worldwide profits and must register for Corporate Income Tax (CIT). Limited liability companies are responsible for CIT at 20%, although other entities are liable for tax at 37.6%. Businesses trading in taxable goods and services must register for VAT. They must register within eight days of exceeding the threshold and appoint a local VAT representative to undertake filings to the revenue directorate. The threshold is an annual turnover of ISK 2,000,000 (€14,040, US$16,074).
Through its subsidiary, the parent company can explore the Icelandic market and further afield among other Nordic nations and into the European mainland. Although Iceland is not a member of the EU, it has a solid and binding relationship with the economic bloc through its membership of the European Free Trade Association and as a signatory to the European Economic Area Agreement of 1994. All signatories benefit from freedom of movement for people, goods, services, and capital.
Other benefits for a subsidiary are:
In the broader commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case, the opportunities offered by the European and Scandinavian economies.
However, there is a more straightforward option to the risks and costs of setting up a subsidiary in Iceland and working with Bradford Jacobs in Iceland. Using a global Professional Employment Organisation (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles, and be up and running within days rather than months. All the payroll, taxation and compliance difficulties are under control thanks to our Employer of Record (EOR) services.
Subsidiaries opened by foreign companies in Iceland operate under the Labour Code and the Private Limited Companies Act. Other legislation may come into play, such as the Foreign Investment Act (restricting investment in fishing and aviation), the Act on Posted Workers and Obligations of Foreign Service Providers and the Foreign Nationals Right to Work Act. Companies must register with the Register of Limited Companies and Registers Iceland.
In the case of establishing a limited liability company as a subsidiary, known as an Einkahlutafélag, or Ehf, requirements include:
Registration and Documentation:
Accounts and Taxation:
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