Foreign Nationals' Real Property Rights
Foreign Nationals' Real Property Rights
The conditions for being able to own property in Iceland are laid down in the Act on the Right of Ownership and Use of Real Property, No. 19/1966. See also Act No. 74/2022, amending various acts of law covering rights of ownership and utilisation of real property (undivided common parts, property boundaries, etc.).
These state that:
- All Icelandic citizens, and foreign nationals who are domiciled in Iceland, are permitted to own real property in Iceland.
- Special rules apply to foreign nationals (natural persons and legal persons) who enjoy rights under the Agreement on the European Economic Area, the EFTA Treaty or the Hoyvík Agreement between Iceland and the Faroes; on meeting certain conditions, they are not obliged to obtain permission from the minister.
- The minister of justice may, when certain conditions are met, issue permits granting the right of ownership or use if those proposing to purchase real property are foreign nationals who are neither domiciled in Iceland nor enjoy rights under the agreements mentioned above. Permits are not required, however, in cases involving the leasing of property or of the right of use thereof when the lease period, or term of other rights, is three years or less, or where less than one year’s notice of termination is required.
- Special rules apply to legal persons.
Regulation on the rights of persons covered by the EEA Agreement
If the prospective purchaser or lessee enjoys rights in Iceland under the rules of the Agreement on the European Economic Area (EEA), or the EFTA Treaty, i.e., as regards the free movement of people, the right of establishment, the provision of services or the movement of capital, or those of the Hoyvík Agreement between Iceland and the Faroes, he or she may own property in Iceland without a special permit after meeting certain requirements (see, in particular, Articles 2-4 of Regulation No. 702/2002).
Regulation No. 702/2002 applies regarding rights under the EEA Agreement and the EFTA Treaty; see also the English translation of the regulation.
In these cases, a declaration must be filled out and submitted for registration together with the purchase contract or lease. Sample declarations are appended to the regulation. Declarations shall state that the individual/association/institution in question meets the requirements made of those who enjoy these rights under Regulation No. 702/2002.
The United Kingdom’s withdrawal from the European Union took effect on 31 January 2020. This did not affect the rights of those UK nationals who had previously acquired property in Iceland under the exemption provision of Article 1 of the Act on the Right of Ownership and Use of Real Property (cf. point 6 of Article 5 of the Act on Measures regarding the Departure of the United Kingdom from the European Union and the European Economic Area, No. 121/2019). Since 31 December 2020, however, UK nationals have had to obtain permission from the minister.
Permission from the minister
If a prospective purchaser is neither an Icelandic citizen nor a foreign national domiciled in Iceland and does not enjoy rights under the agreements mentioned above, an application may be made to the minister for permission to acquire the right of ownership or use of property in Iceland. The minister may grant permission to deviate from the conditions of the first paragraph of Article 1 of the Act on the Right of Ownership and Use of Real Property in two types of instance (cf. points 1 and 2 of the second paragraph of the article), i.e.:
1. in accordance with applications from natural or legal persons for which it is necessary to acquire the right of ownership, or the right of utilisation, over properties and the appurtenant property rights for direct utilisation in their business operations (cf. point 1 of the second paragraph of Article 1 of the Act)or
2. in accordance with an application from a natural person if he or she is considered as having a close connection with Iceland, e.g. by reason of marriage to an Icelandic citizen (cf. point 2 of the second paragraph of Article 1 of the Act) or if the property is registered as residential property on a rented lot in a built-up area or as a leisure-activity property on a rented lot in a designated leisure-activity area.
Permits granted by the minister shall pertain to a specific property, the size of which shall not exceed 3.5 hectares, and the applicant may not own other properties in Iceland.
Exemption may be granted from the conditions regarding the size and number of properties if the applicant pursues business operations and demonstrates that it is necessary for him, her or it to acquire larger, or additional, properties in connection with such business operations. However, the size of the property may not exceed 25 hectares. This means that an individual who applies to the minister for a permit under point 2 of the second paragraph of the article, i.e. not for direct use in business operations, may not own other property in Iceland, and the property that the person wishes to purchase may not be larger than 3.5 hectares. No exemptions are permitted from this rule.
If an application is based on point 2 of the second paragraph of the article, i.e. the claim of having a ‘close connection’ with Iceland, then the existence of this connection must be demonstrated. The text of the Act mentions marriage to an Icelandic citizen as an example of the sort of ‘close connection’ that the individual in question might have. This is only mentioned by way of example, however, so things other than marriage can also be considered when assessing whether ‘a close connection’ exists. Thus, other types of close family connection to an Icelandic citizen could be considered. A ‘close connection’ to Iceland could also exist if the person in question has visited the country on many occasions over a considerable length of time (this would not mean having visited the country on only a few occasions, or on many occasions during, for example, only a single year) and formed bonds of friendship that have lasted for some length of time.
If an application submitted under point 2 of the second paragraph of the article is based on the claim that the property is a leisure-activity building on a rented lot in a designated leisure-activity area, it must be accompanied by a confirmation that the area in question is a designated leisure-activity area. Confirmations to this effect may be obtained from the planning office of the relevant local authority.
Applications shall be accompanied by materials that can be verified, and the ministry may request further information and materials, e.g. declarations by individuals familiar with the applicant who are capable of confirming statements made in the application.
Permits under the second paragraph of the article may not be issued to foreign states, government authorities, state-run enterprises or other foreign public bodies (see, however, Article 11 of the Act); foreign states are permitted to acquire real property for their embassy offices, the residences of senior embassy staff and apartments for other embassy employees.
In applications, the applicant shall:
- Specify the property in question (property number/land register number)
- State the purposed use of the property and its size.
- Provide details of other properties in Iceland that are owned by the applicant and, if appropriate, by related parties in the sense that this term is used in the Annual Accounts Act.
- Give a clear account of his or her close connection with Iceland if this is claimed in the application (cf. point 2 of the second paragraph).
- Submit confirmation that the property is a leisure-activity building on a rented lot in a designated leisure-activity area, if this is claimed in the application.
- Give a clear account of the necessity of acquiring the right of ownership, or the right of utilisation, of the property and the property rights (e.g. water or geothermal energy rights) for direct use in his, her, or its business operations if the application is based on point 1 of the second paragraph of the article. It must be demonstrated that the size of the property, and the appurtenant rights, are related in a normal way to the business operations and their actual requirements and are not greater than necessity demands.
- In cases where the property in question is larger than 3.5 hectares (maximum 25 hectares), it shall be demonstrated clearly why such a large property is needed for the business operations which it is planned to pursue on the property. If the applicant is a legal person, its direct and indirect ownership shall be accounted for. Furthermore, the beneficiary owner or owners of the legal person, in the sense in which this term is used in the Money Laundering and Terrorist Financing Act shall be identified.
Originals of contracts, transfer deeds or other documents conferring authorisation in connection with rights of ownership or use that are subject to permission under the second paragraph of Article 1 of Act No. 19/1966, shall be submitted to the ministry, and such deeds shall not take effect until the minister has approved the purchase by his or her signature on the original documents.
Information given in applications for permission shall be supported by the appropriate materials and it shall be possible to verify these. The minister shall reject applications for permission if, in his or her opinion, the appropriate materials or information is deficient, after the applicant has been given an opportunity to make good any such deficiency.
Legal persons which meet the following requirements do not need permission from the minister of justice in the following cases:
- If the applicant is a general partnership (sameignarfélag) or a company in which the shareholders bear liability without limitation for the company’s liabilities and all members of the company are Icelandic citizens or have been continuously domiciled in Iceland for at least five years.
- If the applicant is a limited partnership (samlagsfélag) or a partnership limited by shares (samlagshlutafélag), i.e. a company in which some members bear liability without limitation, while others bear limited liability, for the company’s liabilities, those who bear full liability all being Icelandic citizens or have been continuously domiciled in Iceland for at least five years.
- If the applicant is a company in which none of the members bears full responsibility for the company’s liabilities, or a foundation and the company/foundation:
- has its domicile and venue in Iceland and
- its directors are all Icelandic citizens or
- they have been domiciled continuously in Iceland for at least five years.
This point covers, for example, limited companies, private limited companies and partnerships limited by shares if 4/5 of the share capital in companies with limited shareholder liability are owned by Icelandic citizens and Icelandic citizens own the majority of the votes exercised at shareholders’ meetings.
As has been stated above, when an assessment is made of whether the conditions are met for a legal person to acquire rights of ownership or use of property in Iceland, it is necessary to take into account the information relating to the legal person, its directors and the ownership of its share capital.
Applications may be filled out online and sent, scanned in an attachment, to [email protected] or by mail (see the forms below). The original of the purchase contract, deed of transfer or other document authorising the assignment of the right of ownership shall also be submitted.
All documents submitted to the ministry which are not in Icelandic or English shall be accompanied by translations into either of those languages by a state-authorised translator. Applications shall be processed when all materials and information requested in the application forms have been received by the ministry.