Iceland is closely linked with the EU through its membership of the Agreement on the European Economic Area (EEA), which brings together all the 27 EU Member States and three of the European Free Trade Association (EFTA) countries in the Single Market. Much of the cooperation and political dialogue between the EU and Iceland take place in special EEA institutions. Iceland is furthermore a member of the Schengen Agreement, which gives its citizens the right to travel passport-free within the area, and a signatory of the Dublin Regulation on asylum policy.

Iceland shares the EU’s support for the multilateral system and often aligns itself with the EU on foreign policy issues.

Iceland is a Member of the Arctic Council. It supports the EU in obtaining formal observer status on the Arctic Council. The EU and Iceland also work together in the framework of the Northern Dimension and the Barents Euro-Arctic Council.

Iceland applied for EU membership in July 2009 and accession negotiations commenced a year later. Following a change of leadership, Iceland's government notified in March 2015 that Iceland should not be regarded as a candidate country for EU membership.

Iceland’s economic and trade relations with the EU are mainly governed by the EEA Agreement and also by the free trade agreement between Iceland and the EEC from 1972. The EEA Agreement extends the Single Market, with the exception of the agriculture and fisheries sectors, to the EEA countries. Under the EEA Agreement and its procedural provisions, Iceland transposes into Icelandic law EU directives and regulations governing the free movement of goods, persons, services and capital. The EEA is by far Iceland's largest export and import market.

As the EU’s Common Agricultural Policy and the Common Fisheries Policy do not fall under the EEA Agreement, free movement of goods within the framework of the Agreement does not apply to all products. Nevertheless, Article 19 of the EEA Agreement provides a legal basis for the Contracting Parties to agree on rules governing the progressive liberalization of agricultural trade on a mutually beneficial basis. The most recent EU-Iceland bilateral trade agreement negotiated on the basis of Article 19 of the EEA Agreement entered into force on 1 May 2018.

By virtue of the EEA co-operation Iceland also participates in a number of EU policies, agencies and programs, covering areas including enterprise, environment, education and research, competition policy, state aid, social policy, consumer protection, tourism and culture.

Iceland and the EU share similar views with regard to sustainable development, as well as the need to promote the green economy, including by ensuring a green recovery from the crisis engendered by the COVID-19 pandemic.

Iceland is very closely aligned with the EU on climate policy and shares the EU’s ambitions in this area.

Through its European Economic Area membership, Iceland incorporates the relevant EU environment and climate laws in its legislation. This includes participation in the EU Emissions Trading System.

The EU and Iceland have decided on the joint fulfilment (together with Norway) of the Paris climate targets.

Iceland participates in a large number of EU programmes of which the largest are research and development programmes and mobility programmes such as Horizon 2020, Erasmus+ and Creative Europe. Iceland has been very successful in competing in the programmes.

Iceland is a global leader in the field of human rights and a like-minded partner of the European Union.