Foreign Service Companies and Temporary-Work Agencies
The Directorate of Labour is in charge of the application of Act No. 45/2007, on the rights and obligations of foreign undertakings that post workers temporarily in Iceland and on their workers’ terms and condition of employment (the ‘Posted Workers Act’; such workers are normally referred to as ‘posted workers’). The Directorate is also in charge of the application the Temporary-Work Agencies Act, No. 139/2005.
The aim of these acts is to clarify requirements and tighten monitoring regarding the validity of Icelandic collective agreements and other terms of service applying in Iceland to working facilities, health and safety , irrespective of whether the undertaking is Icelandic or foreign. The acts are intended as a further measure to ensure that foreign workers who work in Iceland on a temporary basis for foreign undertakings will be working legally in the country. The acts take account of the provisions of the EEA Agreement and the EU Directives on trade in services. In addition to promoting competition on an equal footing between Icelandic and foreign undertakings, they are intended to discourage social dumping.
Both temporary-work agencies and foreign service companies are obliged to register with the Directorate of Labour and to provide information about their workers who are employed in Iceland and submit copies of their employment contracts. Registration and the submission of these materials, is done electronically via the Directorate’s website.
At the outset it will be useful to note the difference between foreign service companies which have posted workers employed in Iceland, on the one hand, and temporary-work agencies on the other.
- A service company posts workers in Iceland who 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 an Icelandic user undertaking and under its direction.
The distinguishing feature in the above definitions lies in the direction. If a user undertaking is in charge of the work, then the hiring company is a temporary-work agency. The distinction is made in registration with the Directorate of Labour; thus, attention should be given to this point at the outset. However, the final decision on which type of entity is involved lies with the Directorate in all cases. 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 hold valid work permits in their home states. Where this is not available, applications shall be made for work permits from the Directorate of Labour. For further details, see under Work permits
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.
Summary of legislative and administrative requirements applying to workers in Iceland under the auspices of temporary-work agencies or as posted workers employed by foreign companies.
Tax obligation – Directorate of Internal Revenue
Foreign workers who come to Iceland under the auspices of temporary-work agencies are liable to tax in Iceland under point 1 of Article 3 of the Income Tax Act, No. 90/2003. Thus, they are subject to limited tax obligations and pay income tax under item 1 of Article 70 of the same Act. They qualify for personal tax deductions and are required to apply to the Directorate of Internal Revenue for tax cards. If, however, workers spend more than 183 days in Iceland during a 12-month period, they are subject to unlimited tax obligations under Article 1 of the Income Tax Act, No. 90/2003.
The Icelandic user undertaking, as the employer, is responsible for the payment of tax if a worker 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).
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 states. (The full list may be found at the following website: https://www.rsk.is/einstaklingar/skattskylda/tviskottunarsamningar/#tab2). 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 subject 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 2016 is 0.425%.
For further details, see https://www.rsk.is/atvinnurekstur/skattar-og-gjold/tryggingagjald/.
Tax liabilities of user undertakings, foreign companies and temporary-work agencies
Companies which send workers to Iceland are subject to tax in Iceland under point 3 of Article 3 of the Income Tax Act, No. 90/2003, on the services delivered in Iceland. Applications for exemption from this tax under the provisions of double-taxation agreements may be made; 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 www.rsk.is
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 (email@example.com) or by mail (to Tryggingastofnun, Laugavegur 114, 105 Reykjavík).
For further information, see www.tr.is
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 against accidents in Iceland.
For further information, see www.sjukra.is
The law applying to artisans (tradesmen)
Under the Industries Act, No. 42/1978, no one may work at a licensed industrial trade in Iceland without having received 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 www.europass.is or from Iðan.