TL;DR
You need a kennitala, RSK 5.02 registration, a pension fund, and VAT registration once revenue exceeds 2M ISK. The whole setup takes 1–2 weeks. FreelancePay handles all ongoing reporting for 4.49% + VAT, max 16,900 ISK/month.
0) Do You Need a Company?
✅ Sole proprietor on your own kennitala
- No minimum capital
- No registration fee
- Simplest to set up
- FreelancePay works with this
- You bear personal liability
🏢 Private limited company (ehf.)
- 500,000 ISK minimum share capital
- Requires registration in the Company Registry
- Full bookkeeping obligations
- Better personal asset protection
- More complex — not needed by most freelancers
💡 Most solo contractors do not NEED a company. You can operate on your own kennitala with zero company registration fees.
1–5) Step-by-Step Registration
Get your kennitala
Icelandic citizens already have a kennitala. If you are a foreign national you must first register with Þjóðskrá Íslands (National Registry) before starting a business.
- Present passport and registration form
- Wait for kennitala (typically 1–5 business days)
- The kennitala is the foundation of all your official registrations in Iceland
File RSK 5.02
The RSK 5.02 form registers you on the employer registry (launagreiðendaskrá) at Skatturinn. This must be done at least 8 days before you send your first invoice.
- Complete online at skatturinn.is (requires electronic ID)
- Choose your business activity type (ÍSAT code)
- Estimate your calculated remuneration (reiknað endurgjald)
- Wait for confirmation (1–14 business days)
Choose a pension fund
As a contractor you must contribute to a pension fund. You pay 15.5% of your calculated remuneration total (4% employee portion + 11.5% employer portion — you pay both).
- Major funds: LV, Gildi, Festa, Birta
- Register as an employer with your chosen fund
- FreelancePay pays the pension fund automatically for you
Register for VAT when applicable
When your revenue exceeds 2,000,000 ISK over any 12 months, VAT registration becomes mandatory. You can register proactively before reaching the threshold.
- Use the same RSK 5.02 form (VAT section)
- Wait for VAT number (up to 21 days)
- File bi-monthly VAT reports
Send your first invoice
Once registered, it is time to work and invoice. FreelancePay handles everything that comes after — tax filings, VAT, pension reporting.
- Sign up with FreelancePay
- Create an invoice — we handle everything else
- Get paid the same day
What Are Your Ongoing Obligations?
Monthly
Tax report
Income tax + social security — file by the 15th of each month.
Monthly
Pension fund
Pay 15.5% contribution — last business day of the month.
Bi-monthly
VAT report
If VAT-registered — file by the 5th of the following month.
Annually
Tax return
RSK 4.11 business report + personal tax return — January to March.
How Much Will You Actually Take Home?
Example: 400,000 ISK invoice — where does every króna go?
| Item | ISK | Notes |
|---|---|---|
| Invoice amount | 400,000 | |
| − Pension (11.5% employer) | −38,760 | You as employer |
| − Social security (6.35%) | −23,863 | Tryggingagjald |
| = Gross salary | 337,377 | |
| − Pension (4% employee) | −13,495 | You as employee |
| − Income tax (31.49%) − personal credit | −29,721 | After personal tax credit |
| = Net take-home | ≈ 294,161 | 🎉 |
Common Mistakes to Avoid
Starting work before registration is complete
Up to 200,000 ISK penalty for each month of unregistered operation.
Missing monthly tax reports
Estimated tax bill + 1%/day surcharge + interest.
Not registering for VAT when passing the 2M ISK threshold
Skatturinn can register you retroactively and charge VAT on all past invoices.
Mixing personal and business expenses
Deduction difficulties and potential tax penalties.
Forgetting to close registration (RSK 5.04) when stopping
Skatturinn assumes income and sends tax bills even after you stop working.
Comparison
Do it yourself
Monthly cost
0 ISK
Time spent
8–12 h/month
Risk of mistakes
High
Hire accountant
Monthly cost
≈ 30,000–80,000 ISK
Time spent
4–8 h/month
Risk of mistakes
Medium
FreelancePay
Monthly cost
≤ 16,900 ISK/month
Time spent
0 h
Risk of mistakes
Low ✅
Why FreelancePay?
- Invoicing built-in — create and send professional invoices in seconds
- Automatic tax calculations and filings to Skatturinn — no manual work
- Pension fund and social security paid automatically
- VAT registration and bi-monthly reports — always on time
- Year-end summary — ready for your tax return
- Get paid the same day — no waiting 30–60 days
- Personal support every business day
