Government and institution measures in response to COVID-19.

Government and institution measures in response to COVID-19.

Return to homepage  |  Last updated: 18 November, 2020

General Information

The Icelandic government have introduced action in order to respond to the many challenges presented by the COVID-19 outbreak. Has approved three legislative packages on actions against the COVID-19 outbreak effects. The Central Bank has lowered the policy rate. The following discussion are in relation to the main economic measures for companies and employees.

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…)

Government grant for income decline due to COVID-19

Entities in the public sector may apply for a government grant in relation to their income decline due to COVID-19. The requirements for receiving the grant are as follows:

  • The applicant had started operations before 1 April 2020.
  • The applicant’s income from 1 April 2020 to 31 October 2020 were at least 40% lower than his average income on a 7 months period of 2019 and the income decline may be relate to COVID-19 or the governments measures to minimize COVID-19 effect on Icelandic community.
  • The applicant has paid all due taxes (and penalties) and his tax assessments are not based on an estimation from the tax authorities. The applicant is also required to have filed all his tax returns and submitted his annual financial statements the last three years.
  • The applicant is not in the process of being liquidated or in bankruptcy procedures.

The grant’s amount shall never exceed the operational cost of the applicant during the period from 1 April to 31 October 2020. It shall also be capped at the following benchmarks:

  • Not exceed 400,000 ISK for every employee of the applicant and never exceed 2,000,000 ISK if the income decline is from 40-70%.
  • Not exceed 500,000 ISK for every employee of the applicant and never exceed 2,500,000 ISK if the income decline is more than 70%

Other grants received may be deducted from the grant for income decline.

Government grant for being force to close business due to COVID-19

  • Entities which were forced to close their business by the Ministry of Health due to COVID-19 measures may apply for a government grant for being forced to close.
  • The deadline for application in relation to closing of business before 18 September 2020 has passed but not for closing of business after 18 September 2020.
  • The grants’ amounts vary between period of closing. For the current period the amount shall be equal to the applicants operational cost for the closing period but may not exceed 600,000 ISK for every employee each 30 days closing period and at total may not exceed 120,000,000 ISK.
  • The grant is subject to certain requirements, such as income decline of 75% compared to equally long period wherein there were no restrictions of operations due to COVID-19.

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 Act only applies to the private employment market. As the Act  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 Act 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 to 31 December 2020).
  • There is a salary cap. The Act states that a cap will be put on government payments, the payments may not exceed ISK 633,000 per employee, per calendar month.

Increased right to unemployment benefits for part-time employees

  • The Icelandic Parliament passed a bill regarding changes to the Act on Unemployment Insurance and the Act on Wage Guarantee Fund. The amendments objective is to assist companies in maintaining their employees until the economic difficulties associated with COVID-19 dissolve. 
  • 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.
  • The amendments are temporary and originally until 1 June. Since the measure has been extended to 31 December 2020. As of today the option for full time employees to move to part-time are as follows:
    • 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.

Increased right to unemployment benefits for students

  • On 4 September 2020 the Icelandic Parliament passed a bill regarding changes to the Act on Unemployment Insurance in relation to rights to study while receiving unemployment benefits. The amendments objective is to broaden the right of receiving unemployment benefits while studying. The amendments included the following:
    • The maximum amount of ECTS credit an individual receiving unemployment benefits may complete each semester while still receiving the benefits was increased to 12 ECTS (from 10).
    • Participation in the program “Education is opportunity” wherein the participants (unemployed) can conclude a special educational agreement with the Directorate of Labor where he may still receive full unemployment benefits while being a full-time student. The participation in the program is limited to certain education which are defined as labor market study programs in addition to further requirements.

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

Main sources of information

Contact us

Tax: Ágúst K Guðmundsson –
Restructuring: Svanbjorn Thoroddsen –
Legal: Soffía Eydís Björgvinsdóttir –