What is the new Road Tax?

Starting January 1, 2026, the Icelandic government introduced a new "Kilometer Fee" to fund road maintenance. Instead of taxing the fuel you buy at the pump, the government now taxes the actual distance you drive.

Is this a price increase?

For most travelers, no. While you will see this new fee on your rental invoice, the government has removed significant taxes from fuel prices. This means you pay less per liter at the gas station, which helps balance out the new road fee.

How much is the fee?

The government base rate for standard passenger cars is 6.95 ISK per kilometer (approx. €0.05 or $0.05 per km). This ensures that every driver contributes exactly for the amount of road they use. Rental Companies have the option of charging a day price instead of 1.395 ISK per day.

Why did the law change?

It makes the system fairer. In the past, road maintenance was funded by gas taxes. However, with the rise of electric vehicles (EVs) that don’t use gas, the old system became outdated. This new system ensures that every car, whether gas, diesel, or electric pays equally for road upkeep.

I'm renting an Electric Vehicle. Do I still pay?

Yes. As of 2026, all vehicles on Icelandic roads must pay the Kilometer Fee, regardless of what engine they have.

How do I pay this fee?

The fee is either calculated based on your usage or is a predetermined per-day price and is typically settled at the rental desk (either upon pickup or return, depending on your specific rental terms). So the supplier charges on behalf of the government either one of these:

• a) A kilometer fee after your rental, calculated based on your odometer on return
• b) A daily fee, usually charged before the rental at the desk.