Road Tax in Iceland 2025

If you're planning a trip to Iceland after July 1, 2025, and renting a car, there's an important change coming that could impact your travel budget: a new per-kilometer road usage fee (known as "kílómetragjald").

This new system replaces traditional fuel taxes and applies to all types of vehicles, including rental cars. Here's everything you need to know about it.

What Is the Per-Kilometer Road Tax?

The per-kilometer road tax is a new system where vehicle owners are charged based on how many kilometers they drive, instead of paying road taxes through fuel prices.

It's designed to ensure everyone pays fairly for road upkeep, regardless of whether their vehicle runs on gasoline, diesel, or electricity.

Why the Change?

Iceland is undergoing an energy transition.

As more people switch to fuel-efficient or electric vehicles, fuel tax revenue (which currently funds road maintenance) has dropped significantly.

In fact, the average road tax paid per kilometer has fallen from 12.2 ISK/km in 2006 to 7.0 ISK/km in 2023. The government needs a more stable, future-proof way to fund its road network.

This new road tax solves that by:

• Charging based on actual road use, not fuel consumption
• Ensuring all vehicle types contribute fairly
• Maintaining and improving the country's road system for years to come

Who Will Be Charged?

Everyone who drives a vehicle in Iceland. This includes tourists driving rental cars.

Starting in 2025:

• All vehicles under 3.5 tons (including most passenger cars) will pay a flat fee of 6.7 ISK per kilometer
• Heavier vehicles will be charged more, based on weight
• The system will apply to both Icelandic residents and foreign visitors

The tax will replace the existing fuel-based road fees. Fuel prices will be lowered accordingly to reflect the removal of those taxes.

How Will It Affect Tourists and Rental Cars?

1. You Will Pay the Tax at the Rental Desk Before Driving Off

Northbound's rental partners will not include the road tax in the online rental price.

Instead, it will be calculated at the rental desk based on an estimated distance and paid in advance before you begin your journey.

Example:

• If the average trip is 1,500 km
• And the rate is 6.7 ISK/km
• That's about 10,050 ISK (approx. $70 USD) due at pickup

2. Not Included in Fuel or Online Booking

Because this tax is paid directly at the desk, it will not be bundled into your online booking total.

You should prepare to pay it on arrival.

3. It's Not Optional

All car rentals in Iceland will be affected.

This is a government-mandated charge, and rental agencies are legally required to collect it.

4. Why This Matters for Your Trip

The per-kilometer road tax may sound like a big change, but for most travelers it will only make a small difference to your total trip cost.

The average fee based on estimated driving distance falls somewhere between 8,000 and 12,000 ISK (around $55 to $85 USD), which is similar to what fuel taxes previously added at the pump.

Because the fuel taxes are being removed from gas and diesel prices, you might actually see a small drop in per-liter fuel costs. That helps balance out the new system.

More importantly, this shift guarantees better funding for Iceland's road maintenance and infrastructure. Whether you're driving the Ring Road or heading into remote areas, this fee helps keep the routes safer and in good shape for all drivers.

FAQs About the Road Tax

Is the tax included in fuel prices?

No. Fuel prices will drop slightly because fuel taxes are being removed. The road usage tax will be charged separately based on kilometers driven.

Will electric car renters have to pay?

Yes. This is one of the main reasons for the change. Electric and hybrid vehicles previously contributed little or nothing toward road maintenance.

How is the distance measured?

Odometer readings will be used to calculate how far the vehicle was driven. Rental companies will estimate the fee in advance using averages.

What if I only drive a short distance?

Even if you plan to drive a shorter distance, the road tax will still be charged based on an estimated average set by the rental agency. This means that most renters will pay the same fee upfront, regardless of how far they actually travel during their trip.

Will I see this fee on my invoice?

Yes. Reputable rental companies like those listed on Northbound will show this clearly at pickup or as a separate line item on your final receipt.

Final Tips

You can also get a better sense of your trip's fuel cost by using our Fuel Price Calculator. It's a great tool for budgeting your road trip based on your planned route and vehicle type.

• Budget for the road tax in addition to your rental total
• Ask your rental agent for an estimated fee based on your route
• Drive safely and enjoy the ride!

For more information about the kilometer-based road tax, you can visit the official site: vegirokkarallra.is