How to Register a Sole Proprietorship (Einstaklingsfyrirtæki) in Iceland

Starting a business as a sole proprietor in Iceland is a popular choice for freelancers, consultants, and small business owners. It’s one of the most flexible ways to work: you can get up and running quickly, start invoicing clients right away, and avoid the higher costs and formalities that come with forming a limited company.

An einstaklingsfyrirtæki gives you full independence over your work and income. You don’t need to invest startup capital, and registration is simple compared to other business structures. For many people, this makes it the easiest path to self-employment.

There are still responsibilities to be aware of—such as managing your own taxes, social contributions, and record-keeping—but the administrative side is generally straightforward once you’re set up. Overall, it’s a flexible, low-cost way to test a business idea or build your career as an independent professional in Iceland.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in Iceland?

In Iceland, a sole proprietorship is officially called einstaklingsfyrirtæki. It may also be referred to as:

• Sole trader
• Self-employed worker
• Independent contractor

These terms all describe the same business model: one person legally running a business without forming a company or having shareholders.

How does a sole proprietorship (einstaklingsfyrirtæki) work in Iceland?

Einstaklingsfyrirtæki vs. other business structures in Iceland

While many small businesses start as sole proprietorships, there are alternatives if you want more protection or plan to grow. The most common option in Iceland is the private limited company (ehf.), which limits personal liability but requires share capital and more formal accounting. Here’s how the two compare:

Step-by-step guide: How to register a sole proprietorship in Iceland

Step 1: Check your eligibility

To register as a sole proprietor, you must have an Icelandic identification number (kennitala). Everyone living in Iceland for more than six months is required to register with the National Registry (Þjóðskrá), which then issues the kennitala. If you plan to stay for less than six months, you may still be able to obtain a temporary kennitala for tax or business purposes.

Citizens of EEA/EFTA countries can generally register without needing a special permit. Non-EEA nationals may need to secure a residence or work permit before applying for registration as a sole proprietor.

Step 2: Choose your business name

You'll operate under your full legal name by default. If you want a trade/business name (alternate name), you’ll need to register that name in the Firm Registry. The name should not conflict with existing names. You can check existing business names via the government's search tool.

Step 3: Gather required documents

You will typically need:

• Your kennitala (Icelandic personal ID number)
• Valid identification (passport or national ID)
• Business activity description
• Address of business operations
• Documentation of trade name registration (if applicable)

Step 4: Register with the authority

You register with the Register of Enterprises managed by the Directorate of Internal Revenue via the Firm Registry. The registration can usually be completed online through Iceland’s official government services portal.

Step 5: Pay registration fees and contributions

If you operate only under your own name, there’s usually no registration fee. Registering a trade name or for VAT may involve fees. Once operating, you’ll also make monthly payments for withholding tax if you use the calculated remuneration method.

Step 6: Complete post-registration obligations

Once registered, you have several ongoing obligations. You must issue invoices for every transaction that meets Icelandic requirements, maintain proper bookkeeping, and file annual income tax returns. If registered for VAT, you need to submit VAT reports on a bi-monthly basis. Payroll obligations apply if you employ staff. There is no automatic annual renewal of the business registration itself, but your tax filings, VAT declarations, and pension/social security contributions are recurring obligations every year. You must also update authorities if you change address, business activity, or cease operations.

Financial and tax obligations for sole proprietors in Iceland

You are responsible for:

• Personal income tax: Sole proprietors in Iceland are taxed under the progressive personal income tax system. In 2025, the combined state and municipal rates range from 31.49% to 46.29%, depending on income level. Business income is treated as personal income, and you must file an annual tax return with the Directorate of Internal Revenue (Skatturinn).
• VAT (VSK): 24% standard rate, 11% reduced rate for certain goods and services; required if turnover exceeds ISK 2,000,000 in 12 months. If your turnover exceeds ISK 2,000,000, you must also register for VAT using Form RSK 5.02.
• Social security and pension contributions: Sole proprietors must pay into Iceland’s social security and pension system through the “calculated remuneration” method (útreiknuð laun). Contributions include pension fund payments and mandatory insurance fees. Payments are generally made monthly, together with withholding taxes.
• Record-keeping: You are required to keep accurate accounting records, including invoices, receipts, payroll (if applicable), and VAT records. Books must be clear enough to support your tax filings and must generally be retained for at least seven years.
• Invoicing: Every invoice must include your name or registered business name, kennitala (ID number), invoice number, date, description of goods or services, and applicable VAT where relevant. Invoices must be issued in sequential order and kept on file for your records.

Launch your contracting career and stay compliant with Deel

Registering as a sole proprietor gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required to start an einstaklingsfyrirtæki in Iceland?
There is no minimum capital required for a sole proprietorship.

Do einstaklingsfyrirtæki need to register for VAT/GST?
Yes, if you expect taxable turnover above ISK 2,000,000 in a 12-month period, or if you provide taxable goods or services. You use Form RSK 5.02 for VAT and employer/withholding registration.

How much are the standard monthly or annual contributions?
Withholding tax for “calculated remuneration” must generally be paid every month. The amount depends on your income, deductions, and whether you have employees. Taxes are due annually in return filings.

Can an einstaklingsfyrirtæki hire employees?
Yes. If you have employees, you must register them (payroll), withhold tax, pay employer contributions, and register with the employer’s registry.

How long does it take to register as an einstaklingsfyrirtæki in Iceland?
Registering for VAT or employer withholding can take 2–3 days once forms are submitted. The business registry aspect may vary depending on whether you register a trade name.

Can foreign nationals register as einstaklingsfyrirtæki in Iceland?
Yes, EEA/EFTA citizens generally can. Non-EEA nationals may need residence permits. All must obtain a kennitala (Icelandic ID number).

Do einstaklingsfyrirtæki need a separate business bank account?
It is not strictly mandatory, but highly recommended for clarity, accounting, and separating personal vs business finances.

What happens if I stop working as an einstaklingsfyrirtæki?
You must inform the Directorate of Internal Revenue, deregister for VAT if applicable, and file final accounts or tax returns.

Are there any government incentives or reduced rates for new einstaklingsfyrirtæki?
There are no general first-year reduced tax schemes, but sector-specific grants or innovation incentives may apply.

Can I use Deel as an einstaklingsfyrirtæki to get paid by international clients?
Yes. Deel supports freelancers and self-employed contractors (including sole proprietors) to receive payments globally, manage multiple currencies, and stay compliant.

Does Deel generate compliant invoices for einstaklingsfyrirtæki?
Absolutely. Deel invoices meet Icelandic requirements, including VAT if applicable.

Can Deel help me with taxes as a sole proprietor in Iceland?
Yes. Deel provides payment records and tax reports that simplify filing, though it’s not a replacement for an accountant.

Does Deel offer contracts for freelancers and einstaklingsfyrirtæki?
Yes. Deel includes contract templates aligned with local law.

Can I access benefits through Deel as a sole proprietor (einstaklingsfyrirtæki)?
Yes. Deel offers optional perks like health insurance and retirement plans, typically reserved for employees, giving freelancers more security.