This page contains general information and answers to frequently asked questions on issues regarding foreign investment. Further information on foreign exchange matters may be obtained by sending queries to the following e-mail address: firstname.lastname@example.org.
Please note that this e-mail address is only to be used for queries about foreign exchange matters. Requests for exemptions from the Foreign Exchange Act, no. 87/1992, must be sent to the Central Bank of Iceland in writing, together with pertinent documentation; cf. the fifth sentence of Article 13(o), Paragraph 1 of Act no. 87/1992.
It is also possible to make telephone queries by calling +354 569 9600 during the Capital Controls Surveillance Unit legal staff members´ telephone hours, from 10:00 hrs. to 11:30 hrs. Monday through Friday.
Direct investment by residentsGeneral
Residents are authorised to purchase foreign currency from a financial undertaking in Iceland and transfer it across borders for foreign direct investment, provided that the investor is the beneficial owner of the funds to be used for the investment, that the holding purchase is equivalent to at least 10% of share capital, and that the Central Bank of Iceland has confirmed that the transaction qualifies as foreign direct investment. A resident’s purchase of a holding of less than 10% of an operating company’s share capital is also considered direct investment if the investor’s total holding will exceed 10% after the purchase. Furthermore, long-term lending to a commercial enterprise in which the lender owns 10% or more of share capital shall be considered foreign direct investment. Proceeds from the sale of a foreign direct investment are not reinvestable.
What is direct investment?
Direct investment is defined in Article 1 of the Act as a capital contribution or other contribution to the equity of a commercial enterprise, or to the purchase of a holding with the aim of acquiring an effective influence on its management. Furthermore, long-term loans from a company’s owners can be considered direct investment. The definition entails both the requirement that the investment must be made in a commercial enterprise and that the investment must confer an effective influence on the company’s management. Therefore, the authorisation does not cover investment in a foreign company if its operations are primarily in portfolio investment or comparable activities. In statistical reporting, a 10% holding is generally considered the threshold for significant influence over a company’s management; however, the acquisition of smaller holdings can demonstrate the characteristics of direct investment, and the acquisition of larger holdings can be more consistent with portfolio investment. The Central Bank assesses whether an investment is classifiable as direct investment and such investment is subject to confirmation by the Bank.
Conditions for direct investment
A party that exercises an authorisation for direct investment shall be the beneficial owner of the funds in question. If suspicion arises that the party is not the beneficial owner of the funds in question, the financial undertaking acting as an intermediary for the foreign exchange transaction and/or movement of capital shall reject the request for the transaction.
As is mentioned above, foreign exchange transactions and movement of capital in connection with outward foreign direct investment require that the Central Bank has confirmed that the transaction is indeed classified as direct investment. Further information on the contents of requests for confirmation can be found in Article 29 of the Rules on Foreign Exchange, no. 1266/2016.
Investment in financial instruments issued in foreign currency and reinvestment
Investment in financial instruments issued in foreign currency
It is permissible to purchase foreign currency from a financial undertaking in Iceland and transfer that foreign currency across borders for investment in securities, unit shares in mutual and investment funds, money market instruments, other negotiable financial instruments, monetary claims, and other comparable claims in foreign currency for a combined total of 100,000,000 kr. per party. The Central Bank of Iceland is required to review the above maximum amount before 1 July 2017.
Movement of capital in accordance with the above is subject to the following conditions:
a.The party exercising the authorisation must be the beneficial owner of the funds.
b.An individual who exercises the authorisation must have reached the age of 18 years.
c.The asset position of a legal entity that exercises the authorisation must, as of 1 August 2016, be at least equal to the amount of the proposed movement of capital. The term asset position refers to total assets without deducting liabilities.
d.A financial undertaking that carries out movement of capital must send the Central Bank of Iceland a notification specifying the purpose of the transaction within five business days. Further information regarding the contents of notifications can be found in Article 26 of the Rules on Foreign Exchange, no. 1266/2016.
The foreign exchange transactions are subject to the requirement that the payment must be to a non-resident.
The authorisation is specific to each individual and is not transferable, with the following two exceptions:
a. Parties may transfer their authorisations for investment in securities and other foreign financial instruments pursuant to Article 13(b), Paragraph 2, Item 6 and Article 13(c), Paragraph 2 to funds that operate in accordance with the Act on Mutual Funds, Investment Funds, and Institutional Investment Funds by purchasing unit shares in such funds, to the extent that the fund in question uses the authorisation for investments in foreign currency.
b.Parties may transfer the aforementioned authorisations to insurance companies and financial undertakings on the basis of contractual agreements for payment of premiums for the accumulation of third-pillar pension savings or supplemental insurance, and pursuant to agreements concerning investment plan insurance, single-premium insurance, and regular savings in foreign currency.
The transfer of authorisations according to the above must be made in writing and reported to the Central Bank of Iceland. Further information on the contents of notifications can be found in Article 40 of the Rules on Foreign Exchange, no. 1266/2016.
Cross-border capital transfers from foreign financial undertakings’ domestic currency accounts (Vostro accounts) will be authorised it if is demonstrated that such transfers derive from the exercise of the authorisation provided for in Article 13(b), Paragraph 2, Item 6 of the Foreign Exchange Act, no. 87/1992.
Parties that have invested in securities, unit share certificates in UCITS and investment funds, money market instruments, or other negotiable financial instruments issued in foreign currency are permitted to reinvest. The same applies to parties that have invested in monetary claims in foreign currency and other comparable claims.
If the proceeds of the sale or redemption of financial instruments, or funds deriving from payments of dividends, interest, or principal, are used, partially or in their entirety, to invest again in the same type of foreign instrument, this is considered reinvestment in the sense of the above.
The funds are exempt from the requirement to repatriate foreign currency to Iceland.
Real estate transactions abroadResident and non-resident individuals are authorised to purchase foreign currency and transfer it out of the country for the purchase of one real property abroad per calendar year, subject to prior confirmation by the Central Bank of Iceland. An individual is authorised to pay a confirmation fee for a real estate transaction equalling up to 15% of the purchase price of the property without prior confirmation from the Central Bank.
Requests for Central Bank of Iceland confirmation of real estate transactions abroad shall be sent by the financial institution acting as an intermediary for the foreign exchange transactions and movement of capital. If the real estate transaction takes place without the involvement of a domestic financial institution, the purchaser of the property shall request Central Bank confirmation him- or herself. Further information on the contents of requests for confirmation can be found in Article 30 of the Rules on Foreign Exchange, no. 1266/2016.
Such foreign exchange transactions are subject to the requirement that the seller of the property (and therefore the recipient of the payment) must be a non-resident.
If a resident individual sells or receives compensation for damage to a property abroad, he or she is authorised to use the sales proceeds or compensation to reinvest in another property abroad.
The purchase of residence rights or other comparable rights is classified as a real estate purchase in the aforementioned sense.