close
Share with your friends

Iceland

Government and institution measures in response to COVID-19.

Government and institution measures in response to COVID-19.

Return to homepage  |  Last updated: 15 April, 2020

General Information

The Icelandic government will be announcing further action in the coming days in order to respond to the many challenges presented by the COVID-19 outbreak. The government approved a 7-point plan on 10 March on actions against the COVID-19 outbreak effects. The Central Bank lowered the policy rate by 50 basis points to 2.25%, the sixth reduction within 10 months. Further action to be announced. On March 30, 2020, the Icelandic Parliament passed two different legislative acts as relief measures in response to the coronavirus (COVID-19) pandemic. The first of the two legislative acts is intended to mitigate the economic effects of the coronavirus. The second is a supplementary budget act.

Tax measures – Direct and Indirect

(e.g. payment deferrals, rate reductions…)

Click here to see a comprehensive summary of jurisdictional tax measures and government reliefs in response to COVID-19.

Economic stimulus measures

(e.g. loans, moratorium on debt repayments…)

Bridge loans to companies

  • If certain conditions are met, companies will be able to apply for bridge loans to withstand the effects of the global outbreak. The government will guarantee 50% of such loans and it is expected that the government’s maximum total liability for such loans will be ISK 35 billion.
  • It will be in the hands of the financial institutions that issue the loans to decide which companies can receive guaranteed loans. The loans will need to fulfill certain conditions and be intended to fund business operations.
  • The conditions for the guarantees are as follows:
    • The guarantees will only apply to new loans to companies who have experienced a 40% loss in revenue between years. The operational difficulties must also have been sudden and unforeseen, and the company must be viable to continue profitable operations after the coronavirus outbreak has passed.
    • Financial institutions must have taken other conventional actions to assist the company before resorting to government guaranteed loans.
    • There will be a limit to the loan amount to each company. It is expected that the limit will be equivalent to double the labor cost of the company for the previous year.
    • The financial institution must take into consideration their own limitation of liability when deciding the loan agreement terms.
    • The guarantee will be revoked after 18 months.
    • The loans will only be limited to companies whose labor costs are at minimum 25% of their total operating expenses for the precious year.
    • Utilization of the loan amounts may be limited to labor costs, operating resources and rent.
    • The extent of the guarantees will be divided in the following way: (a) companies with fewer than 20 employees; (b) companies with 20–100 employees; (c) companies with 100–250 employees; and (d) companies with more than 250 employees.
  • In addition to these conditions the minister is expected to appoint a committee to supervise the lending process. The committee will have the power to call for information and documents regarding the lending from the Central Bank of Iceland as well as the financial institution involved. The committee shall report to the Minister every six months, starting on 1 November 2020, or immediately when they spot problems in the lending process. The minister shall submit the committee’s reports to Parliament.
  • Additionally, it was brought up in the budget committee’s opinion that companies who receive bridge loans should not be allowed to pay dividends to shareholders or buy back own shares while the loan is outstanding. The opinion is consistent with the legislative change made to the Act on Government Guarantees. Majority of the budget committee also suggested putting in place limits on the amounts of individual loans and prohibiting the financial institutions providing the loans from paying dividends to their shareholders while the guarantees are in effect.
  • Investment campaign
  • The Minister of Finance has been given authority to implement an investment campaign in order to mitigate recession in the economy.
  • Easier imports
  • All customs fees for ships and planes outside normal business hours are eliminated until 31 December 2021.
  • Everyone who has been awarded postponed payment deadlines for import fees will now pay the fees on the fifth day of the second month from the end of each reporting period. This change entails that import fees incurred during the reporting period of March – April shall have a payment deadline of 5 June instead of 15 May. The payment deadline is therefore postponed by 20 days.

Employment-related measures

(e.g. state compensation schemes, training…)

Act on temporary payments to individuals due to loss of income from being quarantined without signs of being infected

  • Employees who are quarantined will get paid a salary. In such cases where an employee is quarantined but does not have the right to a salary from their employer during the quarantine, the government shall pay the employee his salary.
  • The goal of the new Act is to allow individuals to follow the commands of the public health authorities without worrying about loss of income.
  • The bill only applies to the private employment market. As the bill only applies to employers, employees and independently employed individuals on the private employment market, it is estimated that it will apply to approximately 140,000 individuals, or a total of 75% of the total employment market.
  • The aid is conditional. The bill states that certain conditions must be met, for instance the employer of the quarantined employee must be able to prove that he has paid the employee’s salary during the active period (1 February 2020 – 30 April 2020).
  • There is a salary cap. The bill states that a cap will be put on government payments, the payments may not exceed 633.000 krona per employee, per calendar month.

Increased right to unemployment benefits for part-time employees

  • The Minister of Social Affairs and Children has submitted another bill to Parliament regarding changes to the Act on Unemployment Insurance and the Act on Wage Guarantee Fund. The bill’s objective is to assist companies in maintaining their employees until the economic difficulties associated with COVID-19 dissolve. The proposed amendments of the bill are thus temporary.
  • Companies experiencing temporary operating difficulties are encouraged to exercise the option to temporarily downgrade full-time employees to part-time employees rather than terminating the contract of employment. It is of great value to society that as many people as possible maintain their employment
  • Should the bill be enacted into law it will carry the following changes:
    • Individuals who are downgraded to part-time employment could have certain rights to unemployment benefits. These benefits would amount to the proportional loss of income of the employee after he was downgraded to part-time. The conditions of these benefits are that the employee’s employment rate must have been reduced by at least 20% and that the employee maintains at least a 50% employment rate.
    • The amount of the unemployment benefits awarded to each person shall be calculated based on the limit of income-based unemployment benefits, ISK 456.404 in proportion with the employment rate decrease
    • The total sum of the benefits, plus the salary maintained by an employee shall never exceed ISK 700.000 or 90% of the employee's average total salary for the last three months before the application for the benefits is filed.

Self-employed individuals

  • If self-employed individuals experience recession due to the COVID-19 outbreak they can apply for temporary suspension of their business operations with the Icelandic Tax Authority (form RSK 5.02) and subsequently apply for unemployment benefits. Self-employed individuals do not have to file for the termination of their business operations to apply for benefits as they used to before the new laws took effect.

Other measures and sources

Contact us

Tax: Ágúst K Guðmundsson – akgudmundsson@kpmg.is
Restructuring: Svanbjorn Thoroddsen – sthoroddsen@kpmg.is
Legal: Soffía Eydís Björgvinsdóttir – sbjorgvinsdottir@kpmg.is