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.

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.

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.

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.

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

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.

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.

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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).

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.

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.

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.

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.