Iceland flag Iceland: Investing in Iceland

Foreign direct investment (FDI) in Iceland

FDI in Figures

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 cheap green energy. Due to the deep financial crisis that Iceland has faced, several investment projects have been put on hold, and FDI inflows have strongly decreased. According to UNCTAD's 2021 World Investment Report, total FDI inflows to Iceland are negative at USD -811 million in 2020, from USD -302 million in 2019, as a result of the global economic crisis triggered by the Covid-19 pandemic. The total stock of FDI was estimated at USD 7.5 billion in 2020. According to figures from OECD, FDI stock comes mainly from Luxembourg, the Netherlands and Switzerland; and are allocated chiefly in the financial and insurance services, manufacturing and wholesale and retail sectors. In the first semester of 2021, Iceland recorded an outflow of USD 430 million (OECD).

Iceland's main advantages in terms of FDI attraction include well-educated, English-speaking manpower, a positive economic environment and a high purchasing power. Moreover, all remaining capital controls have been recently 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. 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 26th out of 190 countries in the latest Doing Business ranking published by the World Bank (losing five positions compared to the previous edition).

Foreign Direct Investment 201920202021
FDI Inward Flow (million USD) -225-933174
FDI Stock (million USD) 8,4157,6117,714
Number of Greenfield Investments* 453
Value of Greenfield Investments (million USD) 37238135

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.

Country Comparison For the Protection of Investors Iceland OECD United States Germany
Index of Transaction Transparency* 7.0 6.5 7.0 5.0
Index of Manager’s Responsibility** 5.0 5.3 9.0 5.0
Index of Shareholders’ Power*** 8.0 7.3 9.0 5.0

Source: Doing Business, Latest available data

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Iceland

Strong Points
The country's main strong points in terms of attracting FDI are:
- A strong export industry;
- A flexible job market;
- A young qualified workforce;
- Great tourist potential;
- Modern and efficient infrastructures.
Weak Points
The country's main weak points are:
- The limited size of the domestic market;
- The country's vulnerability in the face of the financial crisis;
- High production costs.
Government Measures to Motivate or Restrict FDI
Iceland is a business-friendly and welcoming to FDI country. The country ranks 23 out of 190 economies in the Doing Business 2018 Report of the World Bank.

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.

Bilateral investment conventions signed by Iceland
The bilateral conventions signed by Iceland may be found on the investment policy hub website.

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Latest Update: January 2023