Navigating Iceland’s New Road Tax: Update for 2026
At Magnetic North Travel, we believe that the best journeys are the ones where you can focus entirely on the horizon, not the paperwork. If you are planning a self-drive adventure through the dramatic landscapes of Iceland in 2026, there is a small change to the way road tax is charged that you should know about in advance.
Starting 1 January 2026, the Icelandic government is introducing a new “Kilometre Tax” (kílómetragjald). This is a step towards a fairer, usage-based system as the world moves away from fossil fuels. Read here, how Iceland’s new road tax will work and what it means for your next Icelandic escape.
Why is the road tax system changing?
Iceland’s roads are some of the most beautiful and challenging in the world. Traditionally, road maintenance was funded through taxes in the price of petrol and diesel. However, many drivers are now switching to fuel-efficient and electric vehicles. The government is moving this charge from the amount of petrol/diesel you use, to the distance you travel.
By charging per kilometre, Iceland ensures that everyone who enjoys the roads contributes fairly to their upkeep, regardless of whether they are driving a traditional car or a zero-emission electric vehicle.
The good news is, this will mean lower fuel prices. While a new tax might sound like an extra expense, to offset the new kilometre charge, the government is significantly reducing the tax on petrol and diesel. When you stop to refuel during your 2026 road trip, you will notice that the price per litre has dropped. The money you save at the pump helps to cover the cost of the kilometres you travel.
How it Works for Your Rental
We want your experience at the rental desk to be as seamless as possible. Here is the process for most of our car rental partners in Iceland:
Collecting your car: You will provide a credit card for a standard pre-authorisation (the same hold used for fuel deposits).
During Your Trip: You simply enjoy the drive! There is no need for you to keep track of your own miles or contact anyone during your holiday.
Drop off: The rental company will record your final odometer reading.
Paying Iceland’s new road tax: A fee of approximately 0.06 EUR (6.95 ISK) per kilometre will be calculated and settled using your pre-authorised card. Any remaining held funds on your card are released by your bank within approx. five working days.
Putting it into Perspective
Let’s say you are taking the ultimate Icelandic pilgrimage, the Ring Road. You will cover roughly 1,340 km. At the new rate, the total road tax for the entire journey would be approximately 80.40 EUR. However at the same time, the fuel used for this journey will have cost less than it would have in 2025.
Our Commitment to You
At Magnetic North Travel, we pride ourselves on transparency. Iceland’s new road tax is a mandatory government requirement, and we are working closely with our local partners to ensure it is handled efficiently so you can get back to what matters: the waterfalls, the fjords and most importantly, enjoying your holiday.
There are a few different ways to explore Iceland, one being a self drive using a rental car as mentioned above. These are a great way to travel in the summer when the weather is clearer and more predictable. Our Circle Adventure around Iceland is a great place to start if you are looking for inspiration. We also offer escorted tours, if you don’t feel like driving while on your Iceland adventure. Take a look at our escorted trips during Summer and Winter.
Our Iceland experts are ready to find the best trip for you and create a bespoke itinerary, taking all the latest travel updates into account. Contact our Sales Team for more information.
For more technical details on the initiative, you can visit the official Icelandic government portal: vegirokkarallra.is/en.
