Incentives
Government support -Incentives
The Icelandic Government acknowledges that Foreign Direct Investment is paramount to the continued growth of Iceland´s economy. Special emphasis is on generous support and incentives for Research and Development, incentives for green investments and for foreign experts. Iceland focuses on a favorable environment for businesses in general, including low corporate tax (20% – among the lowest in the EU), availability of land and efficiency in a European legislative framework.
Incentives for R&D
Iceland offers incentives for research and development in the form of tax credits for innovation companies as outlined in Act No 152/2009, approved by the EFTA Surveillance Authority. The aid is granted as a reimbursement of the companies´ paid income tax. The tax credit is 35% of the actual R&D cost within small and medium sized companies and 25% within other. There is an annual ceiling of a total actual cost of ISK 1,100 million which may include outsourced cost of up to ISK 200 million. Under the scheme companies that carry out research and development projects can apply for a tax credit to the Icelandic Centre for Research (Rannís).
Incentives for Green Investments
Iceland has introduced new tax incentives for green investments. The incentive equals 5% discount of the purchase price of sustainable and environmentally friendly movable assets such as industrial and construction machinery and equipment, cars, transport equipment, and vessels.
The new green incentives are intended to encourage private investments to speed up the economic recovery while promoting environmentally sustainable solutions. Indeed, this is an opportune time for government policy-making to alleviate the adverse effects of COVID-19 while supporting an environmentally friendly agenda for a more resilient Iceland.
The incentive applies to investments made from 2021 to 2025 that are environmentally friendly, promote sustainable development, and fall under one of following categories:
- Eco-friendly transport
- Renewable energy
- Sewage treatment and waste recycling
- Sustainable and environmentally friendly management of natural resources and land use
The incentive also applies to other assets provided that a) they are certified by an recognized party or b) fulfill at least two of the following criteria:
- Are rated A+ or higher according to the European Union Energy Efficiency rating.
- Are part of a production process that has environmental certification from a recognized authority.
- Are part of the EU Best Available Techniques for reducing emissions.
- Are powered at least 85% by electricity from renewable energy sources, biofuels or electric fuels.
- Reduce electricity consumption by at least 30%, or emissions by at least 50%, compared to the asset being replaced or comparable assets on the market.
The incentive is granted in the form of additional depreciation base which is calculated on top of the value of the original investment. The additional base is depreciable in equal amounts spread over three consecutive years.
Further details and criteria for the eligibility of assets are defined by a regulation from the Ministry of Finance and Economic Affairs.
Tax incentives for foreign experts
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, if the foreign expert is hired with a legal person, which has domicile or a fixed place of business in Iceland and that legal person is the actual salary-payer; the foreign expert has not been domiciled in Iceland the previous 5 years before his recruitment; and the foreign expert has knowledge that is limited in Iceland.
Support for investments and grants
Icelandic authorities and industry organisation are keen to encourage innovation and investment in research and development.
Direct R&D grants
The Technical Development fund operated by RANNÍS (The Icelandic Center for Research) offers a R&D grant to companies that are working on innovative projects. The maximum amount that will granted towards each company is 45 million ISK divided over a 3 year term. Companies applying for this grant must offer a 50% matching contribution towards the amount applied for. .
Film and TV production
Producers of films and TV material can apply for up to 35% reimbursement of all cost associated with producing a film or TV program in Iceland, fulfilling certain criteria.
Regional incentives under European State Aid Rules
As a member of the European Economic Area, Iceland adheres to the European State Aid Rules. These allow i.a. for regional incentives for new direct investment in defined areas. In Iceland all the regions outside the capital area are generally eligible for regional investment aid.
Applications for incentives and investment agreements can be submitted to the Ministry of Ministry of Higher Education, Science and Innovation, for general review. Investment agreements, with defined incentives, are subject to legislative authorisation from the Parliament and approval from the EFTA Surveillance Authority.
Commission Regulation (EC) No 651/2014, on General Block Exemptions, declares certain categories of state aid compatible with the common EEA market, which Iceland is part of. These include:
- Incentives as Training aid of up to a maximum of 2 million Euros
- Incentives as aid to SMEs investment, up to 10% of investment cost in Medium Sized Enterprises or 20% of investment cost in Small Enterprises , with a ceiling of 7.5 million Euros
- Incentives as aid to environmental protection investment projects up to a maximum of 15 million Euros.
The Regulation falls under the Agreement on the European Economic Area
Businesses have the opportunity to negotiate terms individually, based on the company’s influence on the overall economy and the merits of the investment in questions.
