Country report Iceland

Economic overview

As a function of economic stimulus, the monetary authorities in May 2021 confirmed the official interest rate at 0.75% in order to favor an economic recovery trend, with a reasonable forecast that this level will be maintained for a good part of the year. course.

Following the relevant government interventions in the economy, many economists predict a significant increase in public debt in the period 2020-2026 estimated in the order of 8.8 billion dollars (with a substantial deceleration by the end of 2025). However, these estimates are based on the assumption that almost all Icelanders will be vaccinated no later than the second half of the current year and that the number of foreign tourists in sight in Iceland will reach 1.2 million in 2022. Otherwise, an even worse scenario is envisaged, characterized by even greater annual public deficits with the consequent need, for the following years, to increase the level of taxation or, alternatively, to reduce public spending in the order of 400 million dollars a year or so.

However, it seems that the country has managed to start the economic recovery after the end of the pandemic. Although the pandemic has affected the production capacity of the country, causing changes, including structural changes, both in consumption models and in the way in which production is organized, the level of household savings has dropped and GDP has increased considerably in the course of 2021.

The severe crisis in the tourism sector remains in the background. In 2020, the turnover of the tourism sector was equal to 2.1 billion dollars, compared to 5 billion dollars in 2019 (-58%). A strong contraction in turnover has therefore affected various sectors of the tourism industry; from hospitality, which experienced a reduction from 774 million to 275 million dollars (-64%); to catering, whose business trip was downsized by 30%; to tourist agencies, which recorded a decline of as much as 78% in 2020, going from a total turnover of 616 to just over 135 million dollars.

Main sectors of industry

The climate is unsuitable for agriculture, which could also find favorable conditions in such fertile volcanic soils: potatoes thrive only in the sunniest areas, the rest is reserved for fodder and pastures.

The underground waters of volcanic origin, however, allow the heating, as well as private homes, of greenhouses from which considerable quantities of horticultural products are obtained.

Livestock farming is essentially made up of sheep, while cattle are of secondary importance. In recent years, the breeding and processing of pigs has been started.

The main resource, however, is fishing, which covers almost all exports and is equipped with the most modern and equipped flotilla in Europe.

Icelandic waters are among the most fishy in the world and the authorities try to secure the right to as wide a swath of territorial waters as possible, sometimes coming into conflict with Great Britain.

The main prey of Icelandic fishermen are cod, herring and mallotto. Shrimp, lobster, ocean perch and haddock are also caught.

Recently, and after bitter controversy, commercial whaling has been reintroduced.

The national fleet has more than 900 fishing boats that catch over one and a half million tons of fish every year

While most of the industries are connected with activities derived from fishing (drying and salting of fishery products, manufacture of fish derivatives such as oil, flour, fertilizers, etc.) Iceland can count on a large hydroelectric energy heritage that lately it has represented the fulcrum of major development projects; both for the creation and energy supply of primary and secondary industries (manufacturing, fishing, steel, etc.) and for the “production” of energy for resale to third countries.

Tourism is gradually taking on an increasingly important role within the Icelandic economy, with a constant increase in the industry linked to it, both in the hospitality sector and in the development and creation of the structures linked to it.

Taxation for businesses in Iceland

As for the companies present in Iceland, the legislation provides for a much lower tax system than other tax entities. In order to keep the tax situation of individuals fairly transparent and unambiguous, the Icelandic legal system has introduced information measures aimed at employers. In fact, they are obliged to communicate the personal details, the civic address of the workers and the sums paid to them to the tax officers. The aforementioned obligation exists even if the recipient of the income is no longer a resident of the place.

Taxation is governed by the tax laws enacted by Parliament. The decisions of the courts and tax authorities and the guidelines issued by the tax authorities are an integral part of the interpretation of these laws. Iceland has entered into valid tax treaties with various states since January 2011.

Generally speaking, a company is considered resident in Iceland if it is registered with the national business register, if it has its registered office or if its place of effective management is on the national territory. Resident companies pay the tax according to the worldwide income principle, while non-resident companies are taxed exclusively on income produced in the national territory. Taxable income includes all income from assets, as well as capital gains and interest. The level of taxation is among the lowest among those of OECD member countries. The rate also for 2017 is 20% and the revenue is the exclusive competence of the state while branches of foreign companies are taxed at 20% on Icelandic source income. Partnerships, registered as taxable persons, are taxed at 36%. Where there is no convention to avoid double taxation, an equivalent tax credit is granted and companies can request advance rulings on all types of taxes.

Investing in Iceland

10 reasons to invest in Iceland:

  1. Efficient trading conditions
  2. Innovative workforce and high school education
  3. Green energy at competitive prices via long-term contracts
  4. A broad free trade agreement with China
  5. A European regulatory framework and free tariff access to the common market
  6. Low corporation tax
  7. Competitive government incentives
  8. Strategic location
  9. Excellent infrastructure
  10. Safety and good quality of life

Key sectors in Iceland

Data Centers

Iceland has one of the most reliable energy infrastructures in the world, renewable energy resources, ideal climate for cooling at no cost, and offers long-term contracts and scalable locations.

Chemical industry

Iceland offers the advantage of green energy, political support, low cost chlorine production and highly skilled workforce

Carbon fibers

With strong government support in high-tech industrial, carbon fiber production has the opportunity for a lower price, more environmentally friendly, and more effective.

Biosciences

Strong government support, a remarkable academic network, an advanced health system and natural energy sources are a great opportunity Iceland has to offer for knowledge-based industry such as biotechnology.

Fish farming

Clean water, green energy, and low cost for energy intensive food production such as fish farming, cleaner, lower cost of production and with excellent results in Iceland

Tourism

With strong political and commercial support, public-private associations and a growing number of visitors, tourism is a truly growing sector. Location, nature and cultural identity are a growing attraction for Iceland. Opportunities in the field of travel, accommodation and excursions.

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