Legislative changes following the COVID-19 pandemic
On March 19 the Icelandic parliament (Althingi) resolved to abolish the Parliament's work schedule up to and including April 20. During this period, Althingi will only deal with matters related to the COVID-19 pandemic.
The government and Althingi have since acted quickly, passing legislation and issuing draft bills intended to combat the crisis. In these unprecedented times it is important to maintain an overview of the government's actions. LOGOS has therefore compiled this summary of the main measures and legal changes announced by the government.
The government’s stimulus package
On Saturday March 21, the government introduced measures to address the economic impact of the pandemic. The measures are quite large in scope, estimated at around ISK 230 billion. They are set out below.
Please note that the bill discussed below has as of yet not been accepted by Althingi, and may therefore be amended.
Due date for payments of wages and social security tax
The due date of public levies under the Act no. 45/1987 (on the payment of public levies at source), had earlier in March been postponed for half the levy regarding mainly the payment of wages and social security tax. The government's bill furthermore proposes that employers dealing with temporary operating difficulties due to a fall in income can delay payment of wages and social security tax for up to three due dates for wages and social security contributions. This thus entails three due dates leading up to December 1, 2020, with the deadline set at January 15, 2021, although there are possibilities for further deferral in certain cases.
These options are reserved for companies experiencing operational difficulties, i.e. at least a one-third decrease in revenue compared to the same month of the previous year. Companies will have to provide documentation along with their application, demonstrating such revenue decreases. However, the bill provides that such operational difficulties cannot be grounds for requesting assistance “if the employer has sufficient equity to borrow in the general market or sufficient cash to cover operating expenses when they are due". Another condition is that dividends may not be paid out during the year, and that owner withdrawals from the company should be no higher than the calculated remuneration according to the Income Tax Act.
Given the set conditions, it seems likely that companies that have already paid dividends this year will not be able to postpone public levies in this manner. It is also unclear how the assessment of sufficient available equity for loan financing will be carried out. Additionally, other conditions are in place, such as no defaults, previous operational difficulties, etc.
Minister of Finance’s authorisation to cancel or lower prepayment of income tax
The bill proposes that the Minister of Finance be authorised to issue a regulation to reduce or repeal prepayment of income tax in 2020, and for corporate income tax for 2019. The duration of the postponement and conditions for utilisation will depend on the implementing regulation.
One-off child benefit payment
A one-off child benefit payment will be offered in the amount of 20 to 40 thousand ISK, determined by the parents' income. The payment will be determined in coordination with the levying of public fees this year.
Cancellation of customs clearance fee
It is proposed that the special customs clearance charge, which is imposed on the customs handling of freighter ships and aircrafts outside general business hours, will not be collected from the bill’s date of entry into force and until end of year 2021.
Dividing customs duties on import duties and increased possibilities for utilising input VAT
Importing companies have changed their orders because of the pandemic, affecting the stock purchases of pharmaceutical companies and food distributors. In order to mitigate the negative effects of the pandemic on imports, import duties in customs will be divided into two from the accounting period March to April and into 2020.
At the same time, a temporary amendment to the Value Added Tax Act is proposed, allowing all taxable income in the relevant period to be deducted, even if it has only been partially paid.
Refund of VAT
The bill proposes that the rate of reimbursement of VAT for residential housing construction will be raised from 60% to 100% between March 1 2020 to December 31 2020. This is done to reduce unemployment, encourage construction and maintenance projects and reduce untaxed economic activity.
The bill also proposes that owners and tenants of residential property may request repayment of all VAT for household assistance or regular residential care over the same period.
Certain NGOs, such as humanitarian and charitable organisations, sports clubs, and rescue teams, can also be reimbursed for all VAT paid for labour concerning construction, renovation or maintenance of structures owned by organisations in question.
Cancellation of city tax
The tourism industry is likely the industry that has been hit the hardest by the pandemic. To assist the sector, the 300 ISK per night city tax will be cancelled until the end of 2021. City tax payments for the first period of 2020 may be postponed until February 2022.
Access to private pension savings
Those who have accumulated private pension savings will be allowed to withdraw up to ISK 12 million from their savings. Payments are made in equal installments for a 15-month period, but the payout period is reduced proportionally if an amount of less than 12 million is withdrawn. The measure is intended to increase the disposable income of individuals and households and to stimulate demand in the economy.
Accelerated bank tax reduction
The bill accelerates the reduction of a special tax on financial undertakings (the so-called bank tax) decreasing the tax rate to 0.145% in 2021 instead of 2024 as previously planned.
Measures to enhance the ability of municipalities to respond to recession
The bill proposes to significantly relax requirements for budgeting restraints in the operation of municipalities, allowing for greater spending in order to cope with the recession.
The Central Bank of Iceland's responsibility for additional corporate loans ("bridging loans")
It is proposed that the Treasury will act as guarantor for the Central Bank of Iceland, which in turn will guarantee additional lending from financial institutions to companies in serious financial trouble due to the pandemic. This measure is intended to greatly increase the lending ability of banks to struggling companies.
However, the bill provides that the above measure will not fall under the scope of the State Guarantee Act no. 121/1997.
Supplementary budget Act
A Supplementary Budget Act was introduced in conjunction with the government’s economic action. In the act an authorisation is granted to the Treasury to guarantee the Central Bank’s innocuity in relation to the Bank’s guarantee of anybridging loans provided by the financial institutions to the companies discussed above.
There are many interesting provisions to be found in the Supplementary Budget Act, such as a provision that allows for temporary capital investment in profitable public investment, e.g. transport infrastructure, and share capital increases in public companies in order to increase their investment capacities.
In addition, the bill includes a lot of marketing and promotion work abroad in response to the impact of the pandemic on tourism, and up to ISK 1,5 billion will be spent to support the tourism industry. The support may include a gift certificate to all inhabitants over the age of 18 years old, that can be used for domestic travels, as a motivation to Icelanders to travel domestically.
Other legislative changes
Before the Government's action plan was introduced, several legislative amendments had already been approved by Parliament.
Suspension of half the payment of public fees, i.e. payment of public levies and social security tax
The bill was approved by Parliament, which means that half the tax payment due in March 2020 and half the social security tax payment due in March 2020 shall be postponed for one month. Under normal circumstances, the due date would be March 16, but it will be moved to April 15, 2020.
The amount of time has been increased that can pass without default penalties, such as surcharges or penalty interest, is applied to half the amount due in March 2020. As discussed above, further delays of due dates have been granted, but the deferral of due dates in March is not subject to the same conditions.
Temporary payments for wages of quarantined individuals
As of writing, almost 6.500 individuals are subject to legal quarantine to stem the spread of the virus. Naturally, questions arise regarding the rights to wages of those who are quarantined, as they are not considered to be sick and are not entitled to use their sick days under the relevant collective agreement. Strong arguments suggest that quarantined employees should be paid their wages, as there is a risk that people would otherwise not respect the prescribed quarantine as they need their wages to provide for themselves and their families.
With the Act on Temporary Payments for Wages of Individuals Subject to Quarantine Instructions from the Health Authorities without Showing any Signs of Being Infected, payments are supplied to employers who have paid wages of their employees that have been quarantined.
There are certain conditions that need to be fulfilled, such as that the employee in question will have been unable to perform his or her job in whole or in part during quarantine and that other incidents did not prevent the employee from being able to attend work at the workplace.
There is a maximum limit for the payments, which is ISK 633,000 per month or ISK 21,100 per day, which the employer can receive, and the employer is required to apply for the payment from the Directorate of Labor.
Unemployment insurance payments due to reduced employment rate
Furthermore, a bill with amendments to the Unemployment Insurance Act no. 54/2006 has been passed regarding unemployment insurance for employees who need to reduce their employment rate at their place of work. The employee can apply for unemployment insurance to offset a loss of income.
The bill does not specifically address various issues that may arise during the implementation of the bill, e.g. whether the employer can unilaterally lower the employment rate of their staff by means of notification or whether they need to reach an agreement with the employee. Additionally, it doesaddresse whether the notice period for termination of employment must be respected if the decision is taken unilaterally.
Changes were made to the bill in Althingi which included students to the measure, who would otherwise not be covered by unemployment insurance. Students can now apply for benefits within the same system.
LOGOS COVID-19 task force
LOGOS has established a working group focused on identifying legal issues concerning the COVID-19 pandemic. Furthermore, specialists in all areas of law work in the offices of LOGOS. If you have any questions about the government’s remedies regarding the pandemic or other legal issues, please contact Einar Baldvin Axelsson, Helga Melkorka Óttarsdóttir or Jón Elvar Guðmundsson , partners at LOGOS.