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Employer of Record in Iceland

Employer of Record in Iceland

Skuad’s Iceland Employer of Record (EOR) solution is perfect for companies looking to expand into Iceland without setting up an entity. Our global human resource (HR) platform enables you to expedite onboarding your remote team, manage their payroll, avoid compliance issues, and handle probation, termination, and taxation. We simplify all employment-related activities for you. With years of experience under our belt and an international network, Skuad is the way to go to build, pay, and manage a team in Iceland. Talk to Skuad experts today to learn more!

Iceland at a Glance

Population: 357,000 people (2021)

Currency: Icelandic króna (ISK)

Capital: Reykjavik

Languages spoken: Icelandic and English

Gross Domestic Product (GDP) per capita: USD 66,944.83 (2019)

Learn more about expanding your business into Iceland by partnering with Skuad.

Employment in Iceland

Iceland is a beautiful Nordic country with a vibrant economy. There are countless business opportunities in Iceland. Its GDP per capita is one of the highest in the world. Companies looking to set up an entity in Iceland need to understand the various aspects of its labor laws. Iceland’s labor laws are similar to other European countries. 

Here are some labor laws in the country.

  • Working Terms and Pension Rights Insurance Act, No. 19/1979
  • Law on Fixed Term Employment, No. 139/2003
  • Maternity/Paternity Leave and Parental Leave Act, No. 95/2000
  • The Industrial Act, No. 42/1978
  • Foreign Nationals’ Right to Work Act, No. 97/2002

However, no matter how business-friendly an economy is, setting up an entity is a cumbersome and arduous task that requires expertise in the laws and regulations of a country. Companies should look to partner with an HR platform such as Skuad to make it easier for them. We are well versed in Iceland’s laws and business practices. To expand into Iceland, talk to us.

Entitlements Explanations
Statutory working hours The statutory working hours are 40 hours per week.
Overtime Employees are paid 1.0385% of their regular wage for working overtime.

The maximum working hours should not exceed more than 48 hours per week. Working hours should be such that an employee must consecutively get 11 hours of rest time in a day.

Paid public holidays The public holidays of Iceland for 2022 are as follows.
  1. New Years’ Day (January 1)
  2. Good Friday (April 15)
  3. Easter Sunday (April 17)
  4. Whit Sunday (May 23)
  5. August Bank Holiday (August 1)
  6. Christmas (December 25)
  7. Afternoon on Christmas eve and New Years’ eve.
Holiday allowance Employees are paid 10.17% of their total wages as holiday allowance. Employers must give their employers 24 working days as a holiday.
Medical leave Employees are entitled to two days of sick leave every month. Employment agreements typically dictate the number of days medical leave can be taken.
Maternity leave Iceland sees both maternity and paternity leaves in the same light. The laws provide the same benefits to mothers and fathers.

Parents receive six months of leave each. One month of leave is transferable. Maternity leave expires when the child reaches 18 months of age.

Parents are paid 80% of their regular income (capped at ISK 600,000/month) during their leave.

Employment health benefits in Iceland The government provides health benefits to all in Iceland. The scheme is funded by taxpayers.
Employee protection and anti-discriminatory rights Employers cannot discriminate based on gender in Iceland. This applies during hiring, dismissal, promotion, vocational training, working conditions and environment, study sabbaticals, and change of position.

To learn more about Iceland’s employment policies to ensure your expansion efforts fall within the legal requirements, book a demo with Skuad experts today.

Contractors vs. Full-time Employees

Employment contracts in Iceland are governed by various statutes. The legislation is modeled after the European Economic Area (EEA) laws. The major difference between contractors and employees is the relationship they share with their employer. Employers can control various aspects of the work of an employee. However, anyone hiring a contractor does not exercise much control over how the contractor provides their service.

According to employment contract law in Iceland, contractors do not get payments from the wage guarantee fund in case their employer goes bankrupt. On the other hand, employers are entitled to their wages in such cases. Contractors can get unemployment insurance in some cases. 

Contractors must calculate and pay the various taxes and social security contributions they have to make to the government. Additionally, contractors between the ages of 16 and 70 have to contribute to one of the pension funds in the country. 

Whether your organization requires contractors or full-time employees, Skuad’s EOR solution can cater to all your hiring requirements. Learn more by talking to Skuad experts.

Hiring in Iceland

Like other European countries, hiring is done through a variety of avenues. Companies use references from their employers to hire candidates. Social media has emerged as another popular area of hiring for recruiters. Companies can post job ads on LinkedIn, Facebook, and other platforms. 

Numerous hiring companies in Iceland connect employers and candidates. Hagvangur and Swapp Agency are some of the hiring firms that are active in Iceland. With modern technology, employers have a vast array of talent to choose from. Many websites connect employers with potential employees. You can find work opportunities on the following platforms. 

  1. Alfred
  2. Job.is
  3. Northstack
  4. Starfatorg
  5. Tvinna

Despite the advantages of modern technology, the hiring process can be time-consuming and cumbersome. You can use Skuad’s Iceland EOR solution to hire employees in Iceland and onboard them as well. Skuad’s solution will enable you to focus on expanding your company, leaving HR-related tasks to our experts.

Probation & Termination 

Probation Period in Iceland

The standard probation period in Iceland is three months. After this duration, companies decide whether they want to hire the employee permanently. Iceland’s employment laws do not mention probationary employees. As such, the process is governed by business practices and customs. 

Termination of Employment in Iceland

Particulars Explanation
Notice for termination of employment Employers must serve a termination notice to employees in Iceland. Here are the notice period details.
Duration of Employment Notice Period
One year One month
Three years Three months
Five years Five months

Employers must abide by the rules laid down for termination. Employers and employees can terminate their contract without stating a reason unless something contrary is written in their employment agreement or collective agreement. The employee has the right to demand the reason for which they were fired and are entitled to an interview regarding the end of their employment. 

To ensure your expansion endeavors adhere to the laws regarding probation and termination in Iceland, talk to Skuad experts and book a demo today.

EOR Solution in Iceland

Skuad’s EOR service makes it easier and faster for businesses to expand into the country. You can take the EOR route to ensure things go smoothly for you while hiring employees from Iceland. We will help you onboard and manage employees. Skuad will take care of all employment-related responsibilities and compliance. Additionally, you can rely on us to manage monthly payroll, work permits, taxation, and payroll filing. Skuad’s Iceland EOR solution can expedite your expansion efforts. 

Payroll Outsourcing in Iceland through an Employer of Record 

Hiring employees from a new country is not an easy task. Iceland’s talent pool has immense potential and you will find suitable employees for your company. To make the journey of hiring and employee management easier, you can take the EOR route. Skuad’s EOR solution is an integrated, high-tech HR platform that enables seamless payroll management for organizations and tremendous industry experience. We can offer tailor-made EOR solutions for all your expansion needs. To avail yourself of our services, speak to Skuad experts today.

Types of Visas in Iceland

People that live in the EEA can come and work in Iceland without a work permit. However, they must register themselves as residents with the registration office if they plan on staying for more than three months. Many people from the EEA come for a summer job and go back to their country when their contract expires.

Visa Category Explanation
Iceland Transit Visa This short-stay visa will help you when you have to travel through Iceland to another destination.
Iceland Tourist Visa This visa will enable you to travel to Iceland for sightseeing and vacationing. The visa can be used for up to 90 days in six months. With the help of this Schengen Visa, you can travel to 25 more countries, including Austria, France, Denmark, and Germany.
Iceland Business Visa Businesspersons need to get this visa to visit Iceland for business-related things. The visa can be used for up to 90 days in six months.
Iceland Schengen Visa for Medical Treatment People who want to come to Iceland for medical treatment can avail themselves of this visa. They will need a medical report, attestation from a hospital or a doctor in Iceland, appointment date, and receipt of medical fees paid.
Iceland Long Stay Visa With this visa, you can stay for up to 12 months in Iceland. However, you cannot find employment.
Iceland Work Visa This visa is given for jobs that require expert knowledge. Individuals need to secure employment in Iceland before applying for this form of visa.

Talk to us and get more information and guidance related to types of visas and work visa requirements in Iceland. Skuad can handle all your visa requirements and ensure the expansion process is not delayed.

Work Permit

Iceland Work Permit for Foreigners

There are six workers for every retired person in Iceland. The figure will change, and by 2040, there will be only three people for every retired person. Iceland needs about 2,000 foreign workers every year. There is a massive skill shortage and it is going to worsen every year. Many sectors such as healthcare, tourism, and information technology (IT) require workers. If you have skills that can be put to use in these areas, you can get a residence permit to work in Iceland. 

The Department of Labor provides approvals for a residence permit based on work in Iceland. A permit is granted under certain circumstances, such as,

  • For work that requires expert knowledge
  • When there’s a shortage of labor
  • For athletes
  • Based on a service contract

Iceland Work Permit Requirements

You need to meet the following criteria to get a work permit in Iceland.

  1. The applicant must be an adult. 
  2. The applicant must have secured an employment agreement in Iceland. In Iceland, you cannot get a work permit without a job offer
  3. The applicant must be able to prove that they can provide for themself in Iceland.
  4. The applicant must have insurance with an operator that is licensed in Iceland. 
  5. According to Iceland’s laws, the applicant should not have a criminal sentence abroad in the last five years or be sentenced for an offense whose punishment is more than three months of imprisonment. 
  6. The applicant must have a valid passport. 

Spouses of employees that are moving to Iceland with work permits cannot work on their residence permits. They need to secure a work permit to work in Iceland. They can apply for the same before or after arriving in the country. However, sometimes, the employee may not be able to fulfill the financial sustenance conditions needed. This means that their spouse will need to secure employment and apply for a work permit before entering Iceland.

Particulars Explanation
Can Skuad sponsor a work permit in Iceland? Yes, Skuad can sponsor work permits in Iceland.
Processing time The processing time for work permits is 90 days in Iceland.
Work permit process

Step 1: Skuad’s local partner in Iceland applies for the Employment Pass.

Step 2: The Directorate of Labor approves the work permit.

Step 3: The Directorate of Immigration then approves the work permit.

Step 4: After the work permit is approved, the employee has to go and get photographed at any of the offices of the Directorate of Immigration or District Commissioner’s Office within one week of arriving in Iceland. They also have to report their residence to the Directorate and undergo a medical examination within two weeks of arrival.

Passport submission The employee needs to present their original passport when they go to the District Commissioner’s office or Directorate of Immigration.
Work permit validity The permit is valid for one year. It can be renewed after one year.
Work permit application process for different countries For most European countries, the process is quite similar.
Change of sponsor within Iceland The employee needs to submit a new application for a change of sponsor.
Where is the application processed? The application is processed in Iceland.
When can an employee go to Iceland? The Directorate of Immigration forwards the permit application to the Department of Labor. After the Department of Labor approves the application, the Directorate gives its approval to the employee. The employee can then come to Iceland.
Cost of a business visa in Iceland A business visa costs EUR 80 (approximately ISK 11,700).
Duration of business visa processing A business visa takes 90 days for processing.
Can a business visa be switched to a work permit? No, a business visa cannot be switched to a work permit.
Can spouses work on dependent visas? No, spouses cannot work on dependent visas.
Special requirements for work permit cancellation The work permit must be canceled by the employer or appointed employment agent.

To know more about work permits in Iceland and how Skuad can secure them for you, speak to our experts today and kick-start your expansion.

Payroll & Taxes in Iceland

Things You Must Know to Set Up Payroll in Iceland

To set up payroll and manage taxation in Iceland, you need to be aware of the rules that vary across categories. First, you must decide whether you want to employ foreign nationals or locals. Then, you need to familiarize yourself with the local tax laws such as income tax, sales tax, and withholding tax. You should ensure that your expansion efforts comply with them.

Payroll and Taxes: Particulars

Particulars Explanation
Income tax
Monthly Income (ISK) Income Tax (%)
0–349,018 17
349,018–979,847 23.50
Over 979,848 31.80
Additionally, employees also have to pay 14.45% municipal tax on their income.
Tax returns Yes, tax returns must be filed.
Financial year January 1 – December 31
Corporate tax Corporate tax for limited liability companies (LLCs) and limited partnership companies is 20%. For other entities such as partnerships, the tax rate is 37.6%.
Withholding tax For non-residents WHT (%)

(Individuals)

Particulars WHT (%)

(Corporations)

Dividend 20 22
Interest 12 12
Royalty 20 36.94 – 45.24
Iceland payroll tax rates There are no Iceland employer payroll taxes.
Sales tax The sales tax is 24%.
Employers’ social security and statutory contributions Employers have to pay a social security tax of 6.50% on total wages. Additionally, a 0.65% tax is levied on fishermen’s wages, which goes toward the Government's accidental insurance program.
Reimbursements To claim the expense reimbursements, the employees must present a scanned copy of the receipts.
Public pension Iceland’s pension system is a tax-financed scheme that has a provision of at least 15% of average earnings.
Medical insurance Medical insurance is entirely subsidized by the government and covers every person who has legally been a resident of Iceland for more than six months.

Filing and paying taxes requires a lot of time, skill, and knowledge. Companies need to be well versed in accounting practices, local laws, and customs. You can either, 

  • Set up an in-house team to handle all the tax responsibilities, or 
  • Hire a local payroll specialist such as Skuad that can make payroll management and taxation simpler for you. Our term of experts will also ensure that you comply with all the payroll and taxation laws in Iceland. Talk to us to learn more.

Incorporation: How to Set Up a Subsidiary in Iceland

Iceland’s rules and regulations that govern companies are similar to other European countries. 

  • Act No. 47 of 2008 regarding Private Limited Companies applies here. An LLC should have at least one shareholder, one director, and a share capital of ISK 500,000 (approximately USD 4,000). One director and one shareholder need to be a resident of Iceland, the EEA, or an Organization for Economic Co-operation and Development (OECD) country. You need to register the LLC with Iceland’s Register of Limited Companies. The registration fee is ISK 130,500 (USD 1,050). The formation notice must be published in the “Legal Gazette.” An LLC needs to inform the Local Government about its registered address. 
  • Act No. 2 of 1995 regarding Public Limited Companies applies here. A public company needs to have at least ISK 4,000,000 (around USD 32,550) as share capital. The registration fee for public companies is also higher than that for LLCs. They have to spend ISK 256,500 (around USD 2,080) to register themselves. A public company must have at least two shareholders and two board members. One of the founders as well as the majority of board members need to be domiciled in Iceland, the EEA, the EU, or an OECD country. The Ministry of Industries and Innovation can grant an exemption to this requirement. 

When registering a company, you need to submit a Memorandum of Association along with Articles of Association (AoA). The AoA is a document that contains the name of the company, address, the purpose for which the company is being formed, names and addresses of directors, share capital details, and other important details. 

Next, you will need to get a value-added tax (VAT) ID to run a business. For that, you need to apply with the Department of Internal Revenue. The department will process your application within seven business days and enter your business into the VAT database. 

All the documentation that is submitted to the local authorities needs to be presented in Icelandic. Many of the forms are in Icelandic and need to be filled in the local language only. 

Forming a company is a difficult task that requires one to be well versed with the local laws and regulations. Incorporating a holding company in Iceland is even more difficult. No matter which company you set up, there are endless formalities that need to be completed. Instead, companies can use Skuad’s EOR solution to form a subsidiary in Iceland. It will simplify the process so that you can focus on business expansion and strategizing.

Professional Employer Organization (PEO)

A professional employer organization (PEO) provides compliance, HR consultancy, filing taxes, health insurance, workforce management, and training. A PEO becomes a co-employer but companies will still be liable. An EOR service provides similar services to companies. However, there are certain differences between the two. 

  • EOR companies become the legal employers of employees instead of the co-employers. An EOR firm has all the liabilities and responsibilities of the employees. A PEO retains your organization as the legal employer. 
  • Employees are covered under the insurance plan of the EOR service. With a PEO, you will have to opt for a plan by yourself. 
  • With an EOR service, you need not register your company in the country. You can have employees in Iceland without setting up an entity. The same is not true for a PEO.

Skuad provides EOR solutions for organizations. Hire Skuad’s EOR solution for Iceland to take care of all the compliance and HR-related tasks, from onboarding to training. Talk to Skuad experts to learn more.

Conclusion: What Gives Skuad’s Iceland Solutions an Edge?

Iceland is one of the most developed countries in the world. It is an excellent place for companies to set up operations and hire employees, especially knowledge workers. There are a lot of responsibilities associated with hiring employees. These involve staying updated with laws and business practices, managing the payroll, filing taxes, adhering to the local probation and termination requirements, and securing visas and work permits. Companies can partner with an EOR solutions firm to expedite their expansion plans. Skuad’s EOR solutions take care of all employment-related responsibilities to ensure everything goes smoothly with your expansion to Iceland.

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