Road Tax in Iceland – What Every Driver Needs to Know in 2026
As of January 1, 2026, Iceland has introduced a new road tax that affects every driver on Icelandic roads — including rental car customers. If you're planning a trip to Iceland in 2026 or beyond, here's exactly what the road tax in Iceland means for you, how much it costs, and why you don't need to worry about it.
What is the Iceland road tax?
Iceland's new road tax — officially called kílómetragjald (kilometre charge) — is a government-mandated fee based on how far you drive. It replaces the old system where road funding came from fuel taxes at the pump.
The tax applies to all vehicles using Icelandic roads — petrol, diesel, electric and hybrid — regardless of whether you're an Icelandic resident or a tourist renting a car. The Icelandic Parliament (Alþingi) passed the legislation on December 18, 2025, with the tax coming into full effect on January 1, 2026.
You don't have to do anything. Your rental car company handles all the reporting and payment to the Icelandic tax authorities on your behalf. The fee simply appears as a clear line item when you book.
How much does the road tax in Iceland cost?
The government base rate is 6.95 ISK per kilometre for standard passenger cars. However, rather than tracking every kilometre you drive, Project Car Rental simplifies this with a flat daily fee:
This covers the government road tax plus a small administration fee for handling the reporting. The advantages of a flat daily rate are:
- No surprises — you know the exact cost before you travel
- Unlimited kilometres — drive the Ring Road, the highlands, wherever you want
- No paperwork — we handle all reporting to Icelandic authorities
- Included upfront — shown clearly at the time of booking
| Rental period | Road tax total | Approx. EUR |
|---|---|---|
| 3 days | 4,650 ISK | ~€31 |
| 5 days | 7,750 ISK | ~€52 |
| 7 days | 10,850 ISK | ~€73 |
| 10 days | 15,500 ISK | ~€104 |
| 14 days | 21,700 ISK | ~€145 |
Why did Iceland introduce this road tax?
Iceland's road network is expensive to maintain — and the old system of funding it through fuel taxes was breaking down. Here's why:
- Electric vehicles and hybrids don't buy fuel, so they weren't contributing to road upkeep
- Increasingly fuel-efficient cars meant less tax revenue per kilometre driven
- Between 2006 and 2025, fuel tax revenue per kilometre dropped by 43%
The new system is fairer — everyone who uses the roads contributes, regardless of what powers their car. The more you drive, the more you pay. If you barely drive, you pay very little.
How the road tax works for rental cars
When you rent a car with Project Car Rental, the road tax is handled completely on your behalf:
- The 1,550 ISK daily fee is shown clearly at the time of booking
- The total is collected when you pick up your car
- We report your vehicle's road usage to the Icelandic Tax Authority
- You drive freely — no odometer checks, no forms, no extra charges at return
The road tax does not cover other fees you may encounter during your trip, including:
• Tunnel fee at Vaðlaheiðargöng (tunnel.is)
• Parking fees in Reykjavík and at tourist destinations
• National park entrance fees
• Any traffic fines
What happened to fuel prices in Iceland?
Here's the good news: when the road tax came in, fuel prices dropped significantly. Because fuel taxes were removed from the pump, the cost of petrol and diesel fell by roughly 90–95 ISK per litre in early January 2026.
| 2025 (before) | 2026 (after) | |
|---|---|---|
| Petrol price (approx.) | ~300 ISK/litre | ~200 ISK/litre |
| Road tax | Included in fuel | 1,550 ISK/day flat |
| Net cost change | — | Broadly similar overall |
For most travellers, the overall cost of driving in Iceland is broadly unchanged — you just pay for road usage differently. The flat daily rate actually makes budgeting easier, since you know your total cost upfront regardless of how far you drive.
Frequently asked questions about the Iceland road tax
No. Project Car Rental handles everything. The fee is collected at pick-up and we manage all reporting to the Icelandic authorities. You just drive.
Yes. The 2026 system applies to all vehicles regardless of fuel type — petrol, diesel, electric and hybrid. EVs have actually been subject to a distance-based fee since 2024 and are now fully aligned with other vehicles.
It is shown as a separate line item so you can clearly see the cost — but it is collected upfront at the time of booking/pick-up. There are no surprise charges when you return the car.
Yes — our flat daily rate covers unlimited kilometres. Whether you drive 50 km or 500 km in a day, the road tax cost stays the same.
No. The road tax only covers road usage. Parking fees, the Vaðlaheiðargöng tunnel fee, and national park entrance fees are separate and paid directly by you.
Yes — petrol and diesel prices dropped by approximately 90–95 ISK per litre when the fuel taxes were removed at the start of 2026. This helps balance out the new daily road tax fee.
Ready to explore Iceland?
Transparent pricing, no hidden fees. The road tax is included clearly at booking — no surprises.
Book your car now →