Here’s a comprehensive guide to freelancing in Iceland, covering essential steps for setting up a business, managing taxes, and fulfilling legal obligations.
*Please be aware that we do not update this information in real time, so you should verify that the law has not changed recently.
Work Visa and Residence:
EU/EEA Citizens: Freelancers planning to stay longer than six months must register with the National Registry.
Non-EU Citizens: A residence visa is required, which may take a few months to obtain, so early application is advisable.
Personal ID Number: Once your residence is established, apply for an Icelandic personal ID number.
Registering a Business Name: If operating under a name other than your own, register it with the Companies Register.
VAT Registration: Required if annual earnings exceed 2,000,000 ISK. Register through Iceland Revenue and Customs for VAT payments, which are due monthly or quarterly.
Income Tax: Iceland’s income tax is a flat rate of 46.25%, payable monthly. Freelancers should factor this into their earnings and manage monthly filings.
Social Security Contributions: A 10.1% social security tax covers health, unemployment, and other benefits.
Consider an Accountant: To ensure compliance and streamline tax management, many freelancers in Iceland hire local accountants.
VAT Threshold: Freelancers earning over 2,000,000 ISK annually must register for VAT and pay at the standard rate of 24%, with an 11% reduced rate available in specific cases.
VAT Payment Process: Keep detailed records of sales, invoices, and VAT payments. If you don’t have a permanent residence in Iceland, appointing a financial representative may be necessary to manage VAT compliance.
Invoicing: Invoices must display details like VAT rate, buyer/seller contact information, a unique invoice ID, purchase date, and item/service description.
Financial Tracking: Accurate, real-time tracking of income, expenses, and VAT payments is essential to remain compliant and simplify tax filing.
Popular Options:
Individual Company: Most freelancers choose this option for its simplicity and minimal tax filing requirements. No special registration is needed unless using a business name.
Limited Liability Company (LLC): For freelancers hiring employees, an LLC may be ideal, though setup and taxation are more complex.
To establish a freelancing career in Iceland, follow these steps:
Secure any necessary residence permits.
Obtain a personal ID and register a business name if applicable.
Set up VAT if annual income exceeds 2,000,000 ISK.
Prepare a reliable accounting system to manage income, taxes, and expenses.
By organizing your registration, tax obligations, and financial management from the start, you can focus on enjoying the freedom and flexibility of freelancing in Iceland.