The Directorate of Labour implements Act no. 45/2007 on Posted Workers and the Obligations of Foreign Service Providers. The Directorate of Labor also implements Act no. 139/2005 on Temporary Work Agencies. 

The purpose of the Acts is to clarify and strengthen supervision regarding the effectiveness of Icelandic collective labour agreements and regarding other terms of employment in Iceland, regardless of whether the company is Icelandic or foreign. The Acts are intended to further ensure that foreigners who arrive here in Iceland on a temporary basis on behalf of foreign companies are working here in a legal and lawful manner.  The Acts reference the provisions of the EEA agreement and of the EU directives concerning service transactions, are intended to promote the equal competitive position of Icelandic and foreign companies and are intended to counteract social dumping.   

Both temporary work agencies and foreign service companies are obliged to register with The Directorate of Labour and provide information regarding their employees working in Iceland and submit a copy of their employment contracts. The registration and provision of the information is done electronically here on this website. 

To begin with, it is important to distinguish foreign service providers on one hand, and temporary work agencies on the other.  

  • Foreign service companiespost workers in Iceland to work under its direction in accordance with an agreement with a user undertaking on the provision of services in Iceland. Service companies also send workers to Iceland on their own behalf to work in their branches or in companies in Iceland that are owned by the same corporate group. 
  • Temporary-work agencies hire out workers in return for a fee to carry out work at the workplace of the user undertaking and under its direction. 


The distinguishing feature in the above definitions lies in the project management. If a user undertaking is in charge of the direction of the workers, then the service company is considered to be a temporary work agency. The registration with The Directorate of Labour takes this distinction into account. Therefore, this issue should be examined at the outset. However, the assessment is always final in the hands of The Directorate of Labour. If the position is unclear, please contact the Directorate of Labour. 

It should be noted that all the definitions above apply to service companies or temporary work agencies that are established in the European Economic Area. When workers who are not citizens of a state in the EEA, or of an EFTA state or the Faroe Islands, are posted in Iceland, information must be submitted showing that they possess valid work permits in their home states. Where this is not available, applications shall be made for work permits from the Directorate of Labour. Further information regarding work permits can be found here. 

There are many requirements that must be met when a foreign company posts workers in Iceland regarding taxation, social insurance and health insurance. The Directorate has compiled the following summary of the main points to bear in mind. 


Summary of legislative and administrative requirements that apply to workers in Iceland under the auspices of temporary-work agencies or as posted workers employed by foreign companies. Temporary-work agencies

Temporary-work agencies:

Foreign workers who come to Iceland under the auspices of temporary work agencies are liable to taxation in Iceland per Article 3, point 1 of of the Income Tax Act, No. 90/2003. Therefore, they are subject to limited tax obligations and pay income tax per Article 70item 1 of of the same Act. They qualify for personal tax deductions and are required to apply to Iceland Revenue and Customs for personal tax credits. If, however, workers spend more than 183 days in Iceland during a 12-month period, they are subject to unlimited tax obligations per Article 1 of Act, No. 90/2003 on Income Tax. 

The Icelandic user undertaking, bears taxation responsibility as the employer, if a temporary work agency fails to pay tax deducted at source (cf. Article 20 of Act No. 45/1987 on Tax Deductions at Source of Taxes and Public Levies).  

Posted workers:

Foreign workers who come to work in Iceland are subject to income tax in Iceland. 

Iceland has, however, entered into double-taxation agreements with a large number of countries. (The full list can be found at the following website: A point common to all these agreements is that if workers employed by a foreign company spend less than 183 days in Iceland during a 12-month period, they will continue to be taxed in their home countries. If the period of stay exceeds 183 days, on the other hand, then the worker becomes subjected to tax in the country in which the work is done. Workers are not required to apply specifically for exemption according to this rule. 

Full social insurance tax is not paid in respect of these workers if they hold an A1 certificate from their home countries. Social insurance tax for these workers during the tax-deduction year of 2021 is 0,425%. 

For further details, see 

Tax liabilities of user undertakings, foreign companies and temporary-work agencies:

Companies which post workers in Iceland are subject to tax in Iceland per Article 33 of Act, No. 90/2003 on Income Tax, on the services performed in Iceland. Applications can be submitted for an exemption from this tax under the provisions of double-taxation agreements. This is to be done using form RSK 5.42. Exemption is valid for one year at a time. 

The purchaser of the service is required to make over deductions of tax at source in accordance with the Deductions of Tax at Source Act, No. 45/1987. For further details, see 


Social Security – Social Insurance Administration:

Individuals who are temporarily posted to work in Iceland may apply to continue to be covered by the social insurance legislation of their home countries providing that they meet certain conditions. Their estimated length of stay in Iceland may not exceed 24 months (cf. Regulation (EC) No. 883/2004). 

Posted workers and workers under the auspices of temporary-work agencies who come to Iceland to work temporarily must submit A1 certificates from the countries in which they are insured to the Social Insurance Administration. 

The A1 certificate states the social insurance legislation applying to the individual in question during the time of his or her work abroad. The A1 certificate is a demonstration that the individual in question is covered by the social insurance legislation of the EEA state which issues the certificate during the period of work abroad. The certificate is issued for a specific working period, which is stated on the certificate. 

It is desirable to apply for an A1 certificate before beginning to work in another EEA country. Being in possession of an A1 certificate may be of great importance because it will avoid having social security tax collected both in Iceland and in the other EEA country. 

A1 certificates may be submitted electronically ( or by mail (to Tryggingastofnun, Laugavegur 114, 105 Reykjavík). 

For further information, see 

Accident Insurance – Icelandic Health Insurance:

Workers employed in Iceland are regarded as insured against accidents (cf. Article 29 of the Social Insurance Act), providing they meet certain conditions. This insurance applies in general only to workers who work in Iceland and receive wages paid in Iceland. Exemptions from accident insurance in Iceland may be granted if workers are demonstrably insured in their home countries under the accident insurance legislation of their home country (S-1). 

Workers posted in Iceland by a foreign company to work in Iceland but receiving wages in their home countries are not generally considered as being insured for accidents in Iceland. 

For further information, see 

Law on tradesmen:

According to the Industries Act, No. 42/1978, no one is permitted work at a licensed industrial trade in Iceland without having been granted a licence to do so. Citizens of the European Economic Area who intend to work at licensed industrial trades in Iceland shall obtain proof of their educational and professional qualifications before commencing work in Iceland. Further information about this process may be found on Europassor from Iðan Educational Center. 


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