Company formation in brief
Iceland's Act on Investment by Non-Residents in Business Enterprises No. 34/1991 provides for restrictions on foreign investments in the country's economy. Pursuant to para. 4 of this Act, foreigners (excluding EU residents) may not freely carry out economic activities in such areas as fishing in Icelandic territorial waters and using natural energy resources, except for those consumed within Iceland. In addition to those restrictions, foreigners' share in local airlines may not exceed 49%.
Foreigners (excluding EU residents) are required to apply for authorisation to Iceland's Ministry of Commerce (which regulates Icelandic entities) before they start any business that may be established in Iceland in one of the following legal and organisational forms:
* Private entrepreneur
* Open Joint-Stock Company
* Private limited liability company
* Foreign Company branch
* Foreign Company representative office
The simplest form of business organization in Iceland is a†private entrepreneur. A duly registered physical person owns, manages and bears unlimited liability with all his/her property for debts and obligations of his/her business either alone or, as a business owner, by hiring someone for management and control of his/her business on a day-to-day basis.
A private entrepreneur may need a license issued at the place of residence or business, as well as obtain a VAT number for his/her business.
A private entrepreneur keeps simplified accounting and is released from the need to performing audit and filing annual financial statements due from companies.
In Iceland, there is only one type of partnerships -†unlimited liability partnership where two or more partners (physical and legal persons - residents of any countries) with equal rights and unlimited liability for the partnership's debts enter into relations under memorandum of association.
As a rule, although the capital is not limited in any way, a partnership is established in Iceland with the minimum capital of ISK 50 000 (approximately EUR 335) to be paid up before registration.
Open joint-stock company is established in Iceland with a minimum capital of ISK 4 000 000 (approximately EUR 26 500) to be paid up within one year after registration.
The shareholders number is not limited (at least, 2 shareholders). Shareholders are limited in their liability for the company;s debts and obligations within the shares subscribed by them. Shareholders may be directors and vice versa.
The Company is managed by the Board of Directors composed of at least three persons and by one Managing Director. The Managing Director and at least half of the members of the Board of Directors have to be residents of the European Union.
Since open joint-stock companies are usually established to attract an unlimited number of investors by public subscription, such companies are subject to close supervision and more complex regulation than other types of companies in Iceland. All public company's statements are subject to strict audit and available to any parties concerned.
A private limited liability company established in Iceland has to have the minimum capital of ISK 500 000 (approximately EUR 3350) paid up before registration.
The Company may have one shareholder who may be a director at the same time. The number of shareholders is not limited.
If the number of shareholders is less than four, the company is not required to form the Board of Directors but, in addition to, at least, one director, has to have one more deputy director. If the company has more than four shareholders, such companies have to form the Board of Directors composed of, at least, three people, and to appoint a managing director.
Although the shareholders' and directors' majority needs to be EU residents, the practice shows that Iceland's Ministry of Commerce often satisfies foreignersí requests for their independent management of companies. It is quite simple to obtain such authorisation if the companyís proposed business activity is not related to business limited to foreigners.
Foreign company branch, being not an independent legal entity, is fully entitled to carry out business in Iceland on its own behalf.
Foreign company representative office†in Iceland is established to provide technical assistance in providing a number of services related to the foreign companyís activities in Iceland, for example, an office for discussions with potential customers, receiving and sending business correspondence, exhibition display of productsí and services' samples, etc. Representative office is not a legal entity, may not perform independent business activities in Iceland but it is much easier to register and maintain than a branch.
Foreign company branch and representative officeís business attributes need to reflect bank details of the parent company in the country of incorporation.
In March 1999, Iceland provided for by law that a private limited liability company may pay tax at a rate of 5% only, provided that the private limited liability company acquires the International Trading Company (ITC) status.
Compared to other companies registered in Iceland in this legal and organisational form, the International Trading Company is subject to a number of restrictions:
* it is required to obtain a special business license;
* it may not carry out trade on its own behalf in the European Unionís territory;
* it may act as a trading, consulting, insurance, financial and other agent (intermediary) in transactions outside Iceland.
All companies in Iceland are required to appoint one public auditor, an audit company or two private auditors.
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