Iceland's abundant geothermal and hydropower energy sources have attracted considerable foreign investment in the aluminium sector, boosting economic growth, and raised some interest from high-tech firms looking to establish data centres using low-cost green energy. According to UNCTAD's 2022 World Investment Report, after being negative for several years, FDI inflows to Iceland returned positive in 2021, totalling USD 174 million. In the same year, the total stock of FDI was estimated at USD 7.7 billion, around 30.3% of the country’s GDP. According to figures from OECD, FDI stock comes mainly from Luxembourg, the Netherlands and Switzerland; and is allocated chiefly in the financial and insurance services, manufacturing and wholesale and retail sectors. OECD statistics also show that in the first semester of 2022 Iceland received USD 330 million in investment inflows, compared to an outflow of USD 332 million recorded in the same period one year earlier.
Iceland's main advantages in terms of FDI attraction include a well-educated, English-speaking manpower, a positive economic environment and high purchasing power. Iceland has no automatic screening process for investments; moreover, all remaining capital controls have been lifted. Citizens of the EEA are granted the same treatment as local citizens (although some limitations remain in the fishing, aviation and energy sectors). The IT and biotech sectors have been growing fast in recent years, with the pharmaceuticals and wellness, gaming, and aquaculture sectors also offering opportunities to investors. The national government provides special incentives for initial investments. The main drawbacks of investing in Iceland are the high cost of living, weak demography, and its long distance from the European continent. Foreign investments are limited in certain sectors, including fishing, hydropower and geothermal, and aviation. The country’s business environment is good, with Iceland ranking 19th out of 176 in the 2023 Index of Economic Freedom, 14th out of 180 on the 2022 Corruption Perception Index and 20th out of 132 in the Global Innovation Index 2022.
|Foreign Direct Investment||2020||2021||2022|
|FDI Inward Flow (million USD)||-928||153||620|
|FDI Stock (million USD)||7,627||8,103||8,314|
|Number of Greenfield Investments*||5||3||4|
|Value of Greenfield Investments (million USD)||318||143||133|
Source: UNCTAD - Latest available data.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Iceland has set up a very favorable company taxation system (only 15% corporate tax) and has also simplified all company setting-up procedures (only one day). The establishment of free-trade zones and competitive clusters is another measure in favour of investments. Iceland also offers tax inventives for Research and Development.
For further information, visit Invest in Iceland website.
There are some restrictions regarding the country of residency of the board of the company; to obtain more information, you may visit PwC guide to setting a business in Iceland.
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Latest Update: September 2023