Social Enterprise Law Surveys |
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Iceland |
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| What jurisdiction(s) do you practice in? | Iceland |
| What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ... | The most common for-profit organizational form utilized in Iceland is the limited liability company (“LLC”). There are two types of limited liability companies in Iceland, public and private, regulated by two separate acts. Tax considerations play a large role when choosing a type of business entity. The income rate for limited companies and their branches is 20% compared to 37,6% for partnerships. Furthermore, the corporate form offers the benefits of limited liability, while other forms may entail full and unlimited liability for owners or partners. Rules for private limited companies are simpler than for public ones. Partnerships and limited partnerships are organizational forms commonly used in Iceland. A Partnership is an association of two or more persons, including individuals, corporations or other legal entities that operate a business as co-owners for profit. As stated earlier, Partnerships have to pay a higher income tax than limited companies, at 37.6%. However, distribution of after-tax profits of a partnership is not taxable, whereas after-tax profits of a limited company are taxed at a 22% rate when distributed to individuals or Partnership shareholders. Partnerships, which divide their income and assets to the respective partners, are taxable on the same basis as their partners. Under Icelandic law, partners in a Partnership have full and unlimited liability in solidum. Other for-profit structures include businesses run by the self-employed and branches of foreign limited companies. a. Public limited companies are the most common for-profit organizational form used for attracting financing from investors. Public limited companies are mainly aimed at seeking capital from a wide number of shareholders among the public at large, for example on the stock market. b. There are some examples of entities that might be categorized as social enterprises, that use the organizational form of private limited companies. This is not common, however. Most Social Enterprises are general associations (Icelandic: almenn félög). |
| Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required... | There are no requirements for LLCs. Other considerations are permitted if stated in the articles of association. Icelandic law does not specify which interests, other than shareholder value, may be considered. The purpose does not necessarily have to be to distribute profits to shareholders, it may be philanthropical, for the common good, science, arts, etc. |
| Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ... | No, the concept of social enterprise has in general not been embedded in public policy in Iceland. Social enterprises have no legal structure nor a specific regulatory framework in the country. |
| Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat... | Yes. As there is no legal framework for social enterprises in Iceland, these entities can take various organizational forms, including non-profits such as associations. a. No. Non-profits that are Social Enterprises must comply with the same rules as other non-profits. b. No, there are no obvious benefits or restrictions. c. No. d. As the term, social enterprise is not generally used in Iceland, there is no official data on social enterprises as such. Therefore, it is difficult to distinguish social enterprises from the non-profit sector in general. The existing data collected by the National Statistical Bureau provides only limited opportunity to measure those entities that can be categorized under the term Social Enterprise. As a consequence, statistically speaking, social enterprises constitute a very fragmented group in Iceland. A report from 2018 estimated that a minimum of 258 associations, self-governing foundations and cooperatives could be considered social enterprises with paid staff in Iceland in 2017. |
| Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms. | A Co-operative company (Icelandic: samvinnufélög) is a recognized organizational form in Iceland. Co-operatives are companies founded on the basis of co-operation for their members’ mutual monetary benefit, in proportion to their financial participation in the co-operative’s activities. Other salient characteristics are that the number of members is unlimited, there is no fixed amount of founding capital, and the members have no individual liability toward the co-operative’s creditors for debts owed by the enterprise. The typical activities of a co-operative company would be providing its members with goods and services for their own needs, seeing to the general operation of a store for consumers, or processing and selling products of the members. Membership rights are not assignable, nor can they be passed on by inheritance. In fact, the nature of participation in a co-operative is personal. It is for example the main statutory rule that members have equal voting rights and that only members are eligible to sit on the board. On the other hand, the articles of association of a co-operative which performs tasks for producers of goods or services may provide for members acquiring additional votes in proportion to their business with the co-operative, as well as an increased share in profit on the basis of their business with the co-operative or in accordance with the work they have contributed. |
| Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to. | N/A. Social Enterprises do not have a legal structure or regulatory framework in Iceland. |
| In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples. | No. Since Social Enterprises do not have a legal structure or a regulatory framework in Iceland, there is no case law or jurisprudence to speak of. |
| Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe. | Yes.
Furthermore, Enterprises must comply with local environmental and equality laws. |
| Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe. | No. |
| Does your jurisdiction have any ESG requirements for investors? If it does, please describe. | No. |
| Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi... | No, not directly. Investment funds must, however, establish ethical standards in their investments. a. The law does not clarify this duty in detail. There is no common understanding of the definition of ethical standards or their precise meaning. The pension funds seem to interpret the requirement as fulfilled when ESG factors are considered. Please be aware that further requirements are expected in near future with the implementation of the EU Taxonomy Regulation ((EU) 2020/852) and the SFDR ((EU) 2019/2088). |
| What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)? | The type of funding typically varies based on the Enterprise form that the Social Enterprise chooses. For example, Social Enterprises formed as Non-profits receive more grants and charitable investments, while Social Enterprises formed as for-profit corporations received more traditional investments. |
| How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)? | For-profit impact investments are not very prevalent in Iceland but have attracted increased interest recently. |
| What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government... | The Icelandic Government runs several project-specific funds. For example, the Ministry of Foreign Affairs manages a fund that supports development and philanthropic projects. Furthermore, the government recently established a climate fund that funds innovative projects in the climate sector on an annual basis. The Enterprise Investment Fund is a public/private initiative that was established in 2009 by 16 pension funds, Landsbanki and VIS insurance. Its main goal is to invest in established companies that are experiencing financial difficulties but do not exclude any investment opportunity that is desirable. The Technical Development fund operated by RANNÍS (The Icelandic Center for Research) offers an R&D grant to companies that are working on innovative projects. Among other funds worth mentioning are e.g. the New Business Venture Fund, the Gender Equality fund, the Development fund for Immigration Affairs. a. The difficulty to obtain government funding varies between funds. Relevant conditions must be fulfilled in each case. b. No. |
| Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)? | No. |
| To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction. | Publicly traded enterprises must attach in a summary with the report of the board of directors’ information necessary to evaluate the development, scope, position and impact of the company in relation to environmental, social and human resource matters. |
| How prevalent, if at all, are impact bonds in your jurisdiction? | In recent years, the amount of green bonds has increased, although it is not very prevalent yet. The capital of Iceland, Reykjavík, became the first municipality in Iceland to issue green bonds in 2018. Most green bonds are only available to professional investors, although some are offered to retail investors. One of the three major banks in Iceland (Íslandsbanki) issued green bonds to retail investors at the end of 2020, the first Icelandic bank to do so. |
| In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)? | No. |
| Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a... | Yes, Crowdfunding is legal in Iceland. There are no rules that make such funding easier. |
| Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe... | There are tax exemptions available for Nonprofits generally, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form. |
| Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations? | Legal entities are permitted to deduct individual gifts and donations to churches, acknowledged charities, fields of culture, political parties and scientific research, though not above 0,75% of income. |
| Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.) | Not for social enterprises per se. Associations and self-owned organizations are entitled to various tax benefits that are not uniquely available for social enterprises. |
| Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions? | Icelandic law does not provide for a general rule recognizing tax exempt status granted by other jurisdictions. |
| Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe. | No. |
| What government operational support, resources, training or services, are available for small businesses or Social Enterprises? | The Icelandic government offers grants and manages funds to encourage innovation and investment in research and development. Iceland offers incentives for research and development in the form of tax credits for innovation companies. Furthermore, Commission Regulation (EC) No 651/2014, on General Block Exemptions, declares certain categories of state aid compatible with the common EEA market, which Iceland is part of. These include:
The Regulation has been incorporated into the Agreement on the European Economic Area, to which Iceland is a member. Businesses have the opportunity to negotiate terms individually, based on the company's influence on the overall economy and the merits of the investment in questions. The Ministry of Industries and Innovation is responsible for supporting small enterprises and innovation. The Innovation Center in Iceland offers startups and SME´s assistance and guidance with various different issue that arise when starting a company, this includes information on different grants available from the Innovation Center as well as other public and private grants. |
| Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are. | The concept of social enterprise has in general not been embedded in public policy in Iceland. Although associations are common, there is no legal framework that directly applies to them yet. Therefore, they have more autonomy in their activities and organization than public and private limited liability companies. |
| Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness. | No. |
| Is there a different bankruptcy system available for Social Enterprises? | No. |
| What are the average time and filing fees to form an Enterprise in your jurisdiction? | A completed application to establish a company is generally processed in seven to ten days. The registration fee is ISK 256,500 (approx. USD 1,990) for a new public limited company and ISK 131,000 (approx. USD 1,016) for a new private limited company, including an identity number for the company. The registration fee for a non-governmental organization is ISK 5,000 (approx. USD 39). |
| What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well... | No certifications afford beneficial tax status or any other beneficial legal status, but certain certifications may help bolster the Social Enterprise’s social impact claims and provide potential investors and stakeholders with additional information to accurately assess the social impact that the Enterprise makes. |
| Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction. | The business environment in Iceland is fast-moving, focused and company friendly. It is not restricted by complex regulations nor burdened with a heavy system of taxation. For efficient infrastructure, expert services and smooth administration, Iceland meets the highest international standards. |
| Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction. | Since there is no legal framework that directly applies to associations, they have more autonomy in their activities and organization than public and private limited liability companies. However, an act on public interest associations is under consideration in the parliament, so this might change in near future. |
| Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc... | In the general corporate form, directors and officers must use their powers in the best interests of the company and shareholders. While they are not prevented from considering other interests, such as the environment or the larger community, it would be better if they were more easily able to consider those interests. |
| In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects. | No. |
| What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction? | 1. A comprehensive legal structure around Social Enterprises. 2. Providing tax benefits to Social Enterprises utilizing for-profit Enterprise forms. 3. Revising rules governing fiduciary duties of corporations and investment managers to enable or require them to consider factors other than financial return.
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| What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)? | Implementing a uniform set of rules for ESG policies and reporting of public companies would make it easier for investors and consumers to compare and evaluate which enterprises are in fact doing good in the world, which would drive companies to perform better. Please note that such rules are expected to be implemented in Iceland in near future in line with the abovementioned EU Taxonomy Regulation and SFDR. |
| Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not? | No. |
Social Enterprise Law Surveys
Iceland
The most common for-profit organizational form utilized in Iceland is the limited liability company (“LLC”). There are two types of limited liability companies in Iceland, public and private, regulated by two separate acts. Tax considerations play a large role when choosing a type of business entity. The income rate for limited companies and their branches is 20% compared to 37,6% for partnerships. Furthermore, the corporate form offers the benefits of limited liability, while other forms may entail full and unlimited liability for owners or partners. Rules for private limited companies are simpler than for public ones.
Partnerships and limited partnerships are organizational forms commonly used in Iceland. A Partnership is an association of two or more persons, including individuals, corporations or other legal entities that operate a business as co-owners for profit. As stated earlier, Partnerships have to pay a higher income tax than limited companies, at 37.6%. However, distribution of after-tax profits of a partnership is not taxable, whereas after-tax profits of a limited company are taxed at a 22% rate when distributed to individuals or Partnership shareholders. Partnerships, which divide their income and assets to the respective partners, are taxable on the same basis as their partners. Under Icelandic law, partners in a Partnership have full and unlimited liability in solidum.
Other for-profit structures include businesses run by the self-employed and branches of foreign limited companies.
a. Public limited companies are the most common for-profit organizational form used for attracting financing from investors. Public limited companies are mainly aimed at seeking capital from a wide number of shareholders among the public at large, for example on the stock market.
b. There are some examples of entities that might be categorized as social enterprises, that use the organizational form of private limited companies. This is not common, however. Most Social Enterprises are general associations (Icelandic: almenn félög).
There are no requirements for LLCs. Other considerations are permitted if stated in the articles of association.
Icelandic law does not specify which interests, other than shareholder value, may be considered. The purpose does not necessarily have to be to distribute profits to shareholders, it may be philanthropical, for the common good, science, arts, etc.
No, the concept of social enterprise has in general not been embedded in public policy in Iceland. Social enterprises have no legal structure nor a specific regulatory framework in the country.
Yes. As there is no legal framework for social enterprises in Iceland, these entities can take various organizational forms, including non-profits such as associations.
a. No. Non-profits that are Social Enterprises must comply with the same rules as other non-profits.
b. No, there are no obvious benefits or restrictions.
c. No.
d. As the term, social enterprise is not generally used in Iceland, there is no official data on social enterprises as such. Therefore, it is difficult to distinguish social enterprises from the non-profit sector in general. The existing data collected by the National Statistical Bureau provides only limited opportunity to measure those entities that can be categorized under the term Social Enterprise. As a consequence, statistically speaking, social enterprises constitute a very fragmented group in Iceland. A report from 2018 estimated that a minimum of 258 associations, self-governing foundations and cooperatives could be considered social enterprises with paid staff in Iceland in 2017.
A Co-operative company (Icelandic: samvinnufélög) is a recognized organizational form in Iceland.
Co-operatives are companies founded on the basis of co-operation for their members’ mutual monetary benefit, in proportion to their financial participation in the co-operative’s activities. Other salient characteristics are that the number of members is unlimited, there is no fixed amount of founding capital, and the members have no individual liability toward the co-operative’s creditors for debts owed by the enterprise. The typical activities of a co-operative company would be providing its members with goods and services for their own needs, seeing to the general operation of a store for consumers, or processing and selling products of the members.
Membership rights are not assignable, nor can they be passed on by inheritance. In fact, the nature of participation in a co-operative is personal. It is for example the main statutory rule that members have equal voting rights and that only members are eligible to sit on the board. On the other hand, the articles of association of a co-operative which performs tasks for producers of goods or services may provide for members acquiring additional votes in proportion to their business with the co-operative, as well as an increased share in profit on the basis of their business with the co-operative or in accordance with the work they have contributed.
N/A. Social Enterprises do not have a legal structure or regulatory framework in Iceland.
No. Since Social Enterprises do not have a legal structure or a regulatory framework in Iceland, there is no case law or jurisprudence to speak of.
Yes.
- Certain large or public-interest entities must disclose certain ESG information in a non-financial statement.
- Pension Funds must establish ethical standards in their investments.
Furthermore, Enterprises must comply with local environmental and equality laws.
No.
No.
No, not directly. Investment funds must, however, establish ethical standards in their investments.
a. The law does not clarify this duty in detail. There is no common understanding of the definition of ethical standards or their precise meaning. The pension funds seem to interpret the requirement as fulfilled when ESG factors are considered.
Please be aware that further requirements are expected in near future with the implementation of the EU Taxonomy Regulation ((EU) 2020/852) and the SFDR ((EU) 2019/2088).
The type of funding typically varies based on the Enterprise form that the Social Enterprise chooses. For example, Social Enterprises formed as Non-profits receive more grants and charitable investments, while Social Enterprises formed as for-profit corporations received more traditional investments.
For-profit impact investments are not very prevalent in Iceland but have attracted increased interest recently.
The Icelandic Government runs several project-specific funds. For example, the Ministry of Foreign Affairs manages a fund that supports development and philanthropic projects. Furthermore, the government recently established a climate fund that funds innovative projects in the climate sector on an annual basis.
The Enterprise Investment Fund is a public/private initiative that was established in 2009 by 16 pension funds, Landsbanki and VIS insurance. Its main goal is to invest in established companies that are experiencing financial difficulties but do not exclude any investment opportunity that is desirable.
The Technical Development fund operated by RANNÍS (The Icelandic Center for Research) offers an R&D grant to companies that are working on innovative projects. Among other funds worth mentioning are e.g. the New Business Venture Fund, the Gender Equality fund, the Development fund for Immigration Affairs.
a. The difficulty to obtain government funding varies between funds. Relevant conditions must be fulfilled in each case.
b. No.
No.
Publicly traded enterprises must attach in a summary with the report of the board of directors’ information necessary to evaluate the development, scope, position and impact of the company in relation to environmental, social and human resource matters.
In recent years, the amount of green bonds has increased, although it is not very prevalent yet. The capital of Iceland, Reykjavík, became the first municipality in Iceland to issue green bonds in 2018. Most green bonds are only available to professional investors, although some are offered to retail investors. One of the three major banks in Iceland (Íslandsbanki) issued green bonds to retail investors at the end of 2020, the first Icelandic bank to do so.
No.
Yes, Crowdfunding is legal in Iceland. There are no rules that make such funding easier.
There are tax exemptions available for Nonprofits generally, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form.
Legal entities are permitted to deduct individual gifts and donations to churches, acknowledged charities, fields of culture, political parties and scientific research, though not above 0,75% of income.
Not for social enterprises per se. Associations and self-owned organizations are entitled to various tax benefits that are not uniquely available for social enterprises.
Icelandic law does not provide for a general rule recognizing tax exempt status granted by other jurisdictions.
No.
The Icelandic government offers grants and manages funds to encourage innovation and investment in research and development. Iceland offers incentives for research and development in the form of tax credits for innovation companies.
Furthermore, Commission Regulation (EC) No 651/2014, on General Block Exemptions, declares certain categories of state aid compatible with the common EEA market, which Iceland is part of. These include:
- Incentives as Training aid of up to a maximum of 2 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.
The Regulation has been incorporated into the Agreement on the European Economic Area, to which Iceland is a member.
Businesses have the opportunity to negotiate terms individually, based on the company's influence on the overall economy and the merits of the investment in questions.
The Ministry of Industries and Innovation is responsible for supporting small enterprises and innovation. The Innovation Center in Iceland offers startups and SME´s assistance and guidance with various different issue that arise when starting a company, this includes information on different grants available from the Innovation Center as well as other public and private grants.
The concept of social enterprise has in general not been embedded in public policy in Iceland. Although associations are common, there is no legal framework that directly applies to them yet. Therefore, they have more autonomy in their activities and organization than public and private limited liability companies.
No.
No.
A completed application to establish a company is generally processed in seven to ten days.
The registration fee is ISK 256,500 (approx. USD 1,990) for a new public limited company and ISK 131,000 (approx. USD 1,016) for a new private limited company, including an identity number for the company. The registration fee for a non-governmental organization is ISK 5,000 (approx. USD 39).
No certifications afford beneficial tax status or any other beneficial legal status, but certain certifications may help bolster the Social Enterprise’s social impact claims and provide potential investors and stakeholders with additional information to accurately assess the social impact that the Enterprise makes.
The business environment in Iceland is fast-moving, focused and company friendly. It is not restricted by complex regulations nor burdened with a heavy system of taxation. For efficient infrastructure, expert services and smooth administration, Iceland meets the highest international standards.
Since there is no legal framework that directly applies to associations, they have more autonomy in their activities and organization than public and private limited liability companies. However, an act on public interest associations is under consideration in the parliament, so this might change in near future.
In the general corporate form, directors and officers must use their powers in the best interests of the company and shareholders. While they are not prevented from considering other interests, such as the environment or the larger community, it would be better if they were more easily able to consider those interests.
No.
1. A comprehensive legal structure around Social Enterprises.
2. Providing tax benefits to Social Enterprises utilizing for-profit Enterprise forms.
3. Revising rules governing fiduciary duties of corporations and investment managers to enable or require them to consider factors other than financial return.
Implementing a uniform set of rules for ESG policies and reporting of public companies would make it easier for investors and consumers to compare and evaluate which enterprises are in fact doing good in the world, which would drive companies to perform better.
Please note that such rules are expected to be implemented in Iceland in near future in line with the abovementioned EU Taxonomy Regulation and SFDR.
No.