Iceland: An Overview

Iceland is a unitary parliamentary republic and a member of numerous international organisations. Iceland participates in the European Union’s internal market through the Agreement on the European Economic Area (EEA). Accordingly, Iceland implements EU secondary legislation in various fields incorporated into the EEA Agreement and applies the EU’s rules on the four freedoms, state aid and competition. Iceland has a very strong trading relationship with the EU, which is underpinned by the EEA Agreement, with more than half of all Icelandic exports going to the EU.

In IMD’s 2024 competitiveness report, Iceland ranked 15th out of 69 countries, whereas infrastructure and business efficiency ranked 12th and 10th, respectively.

The Icelandic Economy

Iceland made a strong recovery from the global financial crisis, which hit the country particularly hard in 2008. From 2011 until the emergence of the COVID-19 pandemic, Iceland experienced steady economic growth, with one of the highest GDP per capita in the world. Following a GDP decline in 2020 due to the impacts of COVID-19, the GDP increased by:

• 5.1% in 2021;
• 8.9% in 2022; and
• 4.1% in 2023.

In 2024, the GDP increased modestly by 0.5% and is predicted to increase by 1.1% in 2025, according to Statistics Iceland and the OECD Economic Outlook, respectively. Iceland benefits from its rich natural resources and renewable energy, modern infrastructure, a highly skilled workforce and a good education system. Furthermore, Iceland’s ideal geographic location between two major markets, the EU and the US, and its key position in the Arctic region offer opportunities for foreign investment. Unemployment is generally low in Iceland, but has recently risen due to economic disruptions in specific sectors. According to Statistics Iceland, unemployment rose to 6.5% in November 2025.

Historically strong sectors

The Icelandic economy has historically been reliant on the fisheries and aluminium sectors. Due to Iceland’s production of electrical power from geothermal and hydroelectric sources, manufacturing in Iceland grew rapidly in the years preceding the global financial crisis, with aluminium production as the largest industry. In addition, following the financial crisis, tourism has become an important pillar of the Icelandic economy. Over the preceding decade, the number of tourists visiting Iceland increased significantly. Between 2011 and 2018, the annual number of foreign visitors increased by 328%. The COVID-19 pandemic had a detrimental short-term impact on tourism in the country. However, tourism as a proportion of GDP reached 8.7% in 2024, according to the Tourism Satellite Accounts (TSAs) - the highest level ever.

Upwards-surging markets

In recent years, investment in technology sectors has increased, notably in data centre services, as foreign investors have taken an interest in Iceland’s relatively low electricity prices and stable renewable energy, which have remained stable in contrast to international developments. The most exciting investment opportunities in recent years have been found in the IT, tourism, electronics and telecommunications, computer games and e-sports, environmentally friendly energy-dependent industries, carbon storage, biotechnology and pharmaceutical sectors.

Foreign investments

The Icelandic market is generally open and unrestricted for foreign investors. However, some limitations apply to specific sectors according to Act No 34/1991 on investment by non-residents in Iceland, namely fishing, primary fish processing and energy production. Nationals of EEA States (EU member states plus Iceland, Norway and Liechtenstein) are generally exempt from these restrictions, except for restrictions in the fisheries sector. Additionally, there are restrictions in the aviation sector under Act No 80/2022 on air travel. However, these restrictions do not apply to those countries or their citizens that have waived a similar condition through an agreement with Iceland.

The Icelandic Legal System and the Market for Legal Services

Iceland has a well-developed and transparent legal system based on the civil law tradition. There is an efficient and reliable judicial system in place, with procedures before Icelandic courts being very expeditious in comparison to many other European countries. In 2018, the Icelandic Court of Appeal (Landsréttur) began operating, increasing the number of judicial instances in Iceland from two to three. Additionally, there is a strong institutional framework within the administration, with a number of independent administrative boards that decide on complaints concerning a variety of issues, whose decisions are subject to judicial review by the ordinary courts.

Iceland has a relatively stable legal services market, dominated by domestic firms of varying sizes and expertise. There has been a gradual increase in activity across securities transactions, corporate work, and M&A.

Recent and Future Developments

Iceland remains a highly attractive place for investment. Its participation in the EU’s internal market within the framework of the EEA Agreement provides access to a market of over 500 million inhabitants. Iceland continues to endeavour to make its business environment increasingly attractive to foreign investors and to fully utilise its competitive strengths in the global economy.

The development of the legal environment for businesses in Iceland generally aligns with that of the EU.

After the collapse of the Icelandic banking sector in 2008, extensive capital controls were put in place, subjecting cross-border and currency transactions to strict control. The capital controls were fully lifted in 2021, after partial withdrawal in 2017.

Iceland’s economy faces ongoing challenges from disruptive global trends, such as:

• digitalisation;
• climate change; and
• an ageing population.

Furthermore, it is generally expected that Iceland will need to double its energy production in order to fully transition away from carbon emissions by 2040.