Incentives for green investments
Iceland has introduced new tax incentives for green investments.
The incentive equals a 5% discount on the purchase price of sustainable and environmentally friendly movable assets such as industrial and construction machinery or equipment, cars, transport equipment, and vessels.
The new green incentives are intended to encourage private investments to speed up the economic recovery while promoting environmentally sustainable solutions. Indeed, this is an opportune time for government policy-making to alleviate the adverse effects of COVID-19 while supporting an environmentally friendly agenda for a more resilient Iceland.
The incentive applies to investments made from 2021 to 2025 that are environmentally friendly, promote sustainable development, and fall under one of the following categories:
- Eco-friendly transport
- Renewable energy
- Sewage treatment and waste recycling
- Sustainable and environmentally friendly management of natural resources and land use
The incentive also applies to other assets if a) they are certified by a recognized party or b) fulfill at least two of the following criteria:
- Are rated A+ or higher according to the European Union Energy Efficiency rating.
- Are part of a production process that has environmental certification from a recognized authority.
- Are part of the EU Best Available Techniques for reducing emissions.
- Are powered at least 85% by electricity from renewable energy sources, biofuels, or electric fuels.
- Reduce electricity consumption by at least 30%, or emissions by at least 50%, compared to the asset being replaced or comparable assets on the market.
The incentive is granted in the form of an additional depreciation base which is calculated on top of the value of the original investment. The additional base is depreciable in equal amounts spread over three consecutive years.
Further details and criteria for the eligibility of assets are defined by regulations from the Ministry of Finance and Economic Affairs.
Tax incentives for foreign experts
Foreign experts hired to work in Iceland are eligible for personal tax incentives where only 75% of income is taxable for the first three years under certain conditions. For more information see Work in Iceland.
Incentives for businesses in Iceland
General incentives allowed under European legislation declares certain categories of state aid compatible with the common EEA market, which Iceland is part of, and include:
- Incentives as a training aid of up to a maximum of two million Euros
- Incentives as aid to SMEs investment, up to 10% of investment cost in Medium Sized Enterprises or 20% of investment cost in Small Enterprises, with a ceiling of 7.5 million Euros
- Incentives as aid to environmental protection investment projects up to a maximum of 15 million Euros
- Commission Regulation (EU) No 651/2014, also known as the General Block Exemption Regulation (GBER), declares certain categories of state aid compatible with the common with the internal (EEA) market applicable to Articles 107-108 TFEU.
The Regulation falls under the Agreement on the European Economic Area and will be implemented accordingly into Icelandic legislation.
Incentives for R&D
- Tax credits for innovation companies
- Reimbursement of the companies' paid income tax
- 35% of the actual R&D cost for small and medium-sized companies (SMEs)
- 25% for others
- Annual ceiling of a total actual cost of ISK 1,100 million (EUR 7.3 million / USD 8.6 million) - including the outsourced expenses of up to ISK 200 million (EUR 1.3 million / USD 1.6 million)
- Apply for the tax credit through the Icelandic Centre for Research (RANNÍS)
- These tax credits are outlined in detail in Act No 152/2009, approved by the EFTA Surveillance Authority
Regional support for investments and grants
Icelandic authorities and industry organizations are keen to encourage innovation and investment in research and development. Iceland adheres to the European State Aid Rules that allow regional incentives for new direct investment in defined areas.
In Iceland, all regions outside the Reykjavík capital area are generally eligible for regional investment aid. Industrial sites are available at favorable rates, and both the government and local communities offer incentives.
Icelandic companies have equal access to European Union research funds for R&D programs and joint ventures undertaken with companies from at least one other EEA country. Grants are issued for specific projects on a case-by-case basis by bodies, including the evergreen New Business Venture Fund and Rannís Science Fund.
Direct R&D grants
The Technical Development fund, operated by RANNÍS (The Icelandic Center for Research), offers an R&D grant for companies working on innovative projects. The maximum grant amount for each company is ISK 45 million (EUR 300,00/USD 350,00) divided over a 3-year term. Companies applying for this grant must offer a 50% matching contribution towards the amount involved. Find application guidelines here: RANNIS - Technology Development Fund