Loss-of-income subsidies

Loss-of-income subsidies are intended to support business operators who have suffered losses as a result of the pandemic. The Act on Loss-of-Income Subsidies applies thereto. Their goal is to maintain employment levels and economic scope.

Those individuals and legal entities engaged in business or independent activity before 1 April 2020 and have suffered not less than a 40 percent drop in income attributable to the world-wide coronavirus pandemic have a right to receive income shortfall support from the Treasury, subject to certain conditions.

Institutions, regional co-operation agencies and companies that are majority owned by the state or local governments cannot apply for income shortfall support.

The application form for income shortfall support is not ready. A special notice will be issued notifying when it will be possible to accept applications, which need to be received no later than 1 May 2021.

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Basic prerequisites

1. The applicant must be unconditionally subject to taxation in this country

Being unconditionally subject to taxation means that the person or entity concerned must be subject to taxation on all income in this country, wherever it is earned. Further information on unconditional taxation can be found on the website of the Internal Revenue for individuals and legal entities.

This means that entities not subject to taxation, such as sports clubs, charities et al., are not entitled to income shortfall support.

2. Businesses and independent activity

Only those engaged in business or who are independently employed can apply for income shortfall support. This applies to the activity of an entity that pays wages according to withholding tax law and is registered on a wage payer registry as well as on the VAT registry, as applicable. Further information on the wage payer registry and the VAT registry may be accessed on the website of the Internal Revenue.

Further conditions for income shortfall support

A business that fulfils all of the following conditions has a right to income shortfall support from the Treasury pursuant to an application therefor.

40% of the income shortfall support attributable to the coronavirus pandemic

The income of the business in the period from 1 April to 31 October 2020 must have been at least 40% lower than the average in the same 7 months of the 2019 operating year and the drop must be attributable to the world-wide coronavirus pandemic or to public measures to prevent its spread.

If the applicant has received closure support due to having to close in the period between April and October 2020, such support may be deducted from operating income before the income shortfall is calculated, inasmuch as it has been booked as income.

If the applicant has received support for wage costs during a period of notice between April and October 2020, such support shall be deducted from operating expenditure in the calculation of income shortfall support.

Unemployment benefits received in the period between April and October 2020 shall also be deducted from operating expenditure.

If the activity of the applicant commenced after 1 April 2019, the income for the first seven whole months of its operation shall be used for comparison. If it has operated for less than seven months in March 2020, the income shall be converted into reference income for 214 days.

Not in default on public dues and having filed all data

The operating entity must not be in default on public dues, taxes and tax fines beyond the last due date before the end of 2019. Default in this context covers dues and taxes that should have been paid in the year of 2019 and remained outstanding at the end of the year even if a payment plan or agreement on payment was made after such time.

The operating entity must also have filed a tax return and other documentation and data at the appropriate time for the past three years, or since activity commenced, before an application for income shortfall support is filed, as well as annual accounts, as applicable, along with information on the actual owners of the concern. Taxes and dues imposed may therefore not be based on estimates, including withholding tax and value added tax in 2020.

These prerequisites mean that the applicant must have filed all documents required by law for the past three years before the application date. This means, inter alia, that legal entities and individuals with operations must have filed a tax return in 2018, 2019 and 2020, unless operations have not lasted that long.

No bankruptcy or winding-up

An operating entity may not have been wound up or its estate been placed into bankruptcy.

Amount of income shortfall support

The amount of income shortfall support shall be equal to the operating cost of the applicant for the period from 1 April to 31 October 2020, although never higher than the calculated income shortfall. Included in operating cost is the imputed withholding tax of the person or persons heading the operating activity.

Instead of including the imputed withholding tax for April to October 2020 in operating costs, a ratio of 7/12 of the imputed withholding tax according to the 2020 tax return for operations in 2019 may be used.

The maximum of income shortfall support:

If the income shortfall is in the range of 40–70%, the maximum shall be ISK 400,000 for each full-time position per month, although never higher than ISK 2 million per month.

If the income shortfall is in the range of 70–100%, the maximum shall be ISK 500,000 for each full-time position per month, although never higher than ISK 2.5 million per month.

Closure support already received shall be deducted from the income shortfall support.

Income shortfall support shall be counted as taxable income of the operating entity.

Wage earner

A wage earner is a person who receives pay for a job performed at the responsibility of the wage payer, or a person who shall be subject to imputed withholding tax for work on his/her own operating activity or self-employment, including activity in partnership with someone else or under the auspices of a legal entity, such as, for example, a private limited company. The spouse of the person or child shall also be counted as wage earners in this context if they perform work for the operating activity.

Operating costs

In determining income shortfall support, account is taken of operating costs for the period 1 April to 31 October 2020. A deviation is authorised regarding the imputed withholding tax as described above in the section Amount of income shortfall support.

The operating cost in this context is in accordance with the general definition of what belongs to costs as opposed to depreciation or the lowering of assets.

According to the Income Tax Act, the operating expenses are those expenses in the year that have resulted from the making of the income, establishing it and maintaining it. This includes premiums that employees pay to acquire pension rights in a pension fund that operates on the basis of the Act on Compulsory Insurance of Pension Rights and the Operations of Pension Funds, interest from debt, discounts, foreign exchange rate loss, write-down and depreciation of assets, as per further instructions in this Act, and amounts spent to establish and maintain a return from assets in the business.

Furthermore, the remuneration that a person is to allocate to him-/herself for any kind of work, occupation or services that are to be regarded as income in accordance with paragraph 2 of point 1 in section A of Article 7 is regarded as operating expenses. This applies irrespective of whether the remuneration has been paid. If the remuneration has been paid, the method of payment is also irrelevant, be it in cash, a transfer to a personal account, in kind or in benefits or through work exchange.

Further information on operation costs (expenses) of operating entities can be accessed on the Guidelines for the operating tax return on the website of the Internal Revenue (pp. 16–21).

Other issues

New operating entities
According to the provisional clause in the Income Shortfall Support Act, an operating entity that commenced operation between 1 April and 31 August 2020 can receive income shortfall support for the months of September and October of 2020. Rules on income shortfall, operating costs and calculation of the support shall be the same as apply to general income shortfall support.

If income shortfall support is applied for according to the above provisional clause, a written application must be sent to the Internal Revenue. The electronic application form cannot be used in this instance.

Related parties
The total amount of income shortfall support to related parties can reach a maximum of ISK 120 million, including closure support and support according to the Travel Gift Act No. 54/2020.

Publication of information
The Internal Revenue shall publish public information on which legal entities have been accorded income shortfall support. Information shall be published on all support recipients and amount of support equivalent to EUR 100 thousand or more.


The application for income shortfall support is electronic through the website skattur.is. If the applicant is a company (legal entity), the person holding the power of procuration shall register through his/her service access and thus enter the site of the company. A self-employed person enters the application through his/her own service access.

The application form for income shortfall support is not ready. A special notice will be issued notifying when it will be possible to accept applications, which need to be received no later than 1 May 2021.

The Internal Revenue shall process an application no later than two months after an adequate application has been received.

An operating entity shall confirm at the time of the application that it satisfies prerequisites for income shortfall support, that the information underlying the determination of the amount, i.e. regarding operating costs, income and the number of wage earners, is correct and that it is aware that it may entail a surcharge, fine or imprisonment to provide wrongful or inadequate information.

Upon the processing of an application and the review of a decision on an application, the Internal Revenue can request that an operating entity substantiates with documentation its right to income shortfall support.

The redetermination of income shortfall support

It is being assumed that the Internal Revenue will redetermine the income shortfall support if it emerges that the operating entity had no right to the support or had the right to higher or lower support than it had been paid. The provisions of the Income Tax Act apply, as applicable, in this context, in addition to the provisions of the Income Shortfall Support Act.

Excess payment

If it emerges that a party has received income shortfall support in excess of what it had a right to, it shall refund the excess amount with interest from the date of payment. Late payment interest is applied to a claim for refund if not remitted within one month from the date of redetermination by the Internal Revenue.

Surcharge and penalties

If an operating entity has provided wrongful and inadequate information on operating expenses or if its provision of information has in other respects been so inadequate that it has affected the determination of the income shortfall support, the Internal Revenue shall apply a 50% surcharge on its claim for refund. The surcharge shall be cancelled if said party can substantiate that unforeseen circumstances had prevented it from providing rightful information or if it had provided a correction to the Internal Revenue.

If the Internal Revenue maintains that the behaviour of the operating entity could be subject to fines or imprisonment, it shall not be subjected to a surcharge, but the case shall be referred to the police.

Directions on application

The application form for income shortfall support is not ready. Directions on completion will be published as soon as the application form is ready and it will be possible to accept applications. The time limit on applying for income shortfall support is until 1 May 2021.

Right of referral

The determination of the Internal Revenue may be appealed to the Internal Revenue Board. The period of referral and the handling thereof shall be in accordance with the provisions of the Internal Revenue Board Act.

Supplementary material

Where do I find the rules?

The Act on Loss-of-Income Subsidies

Act 30/1992 on the State Internal Revenue Board

Unlimited Tax Liability of Individuals

Unlimited Tax Liability of Legal Entities

Information on The Wage Payer Registry

Information on The VAT Registry


Instructions with the operating tax returns of undertakings