A road trip in Iceland is a truly awe-inspiring and life-affirming experience, offering total freedom to navigate between the country’s astonishing wealth of natural wonders entirely at your own pace. There is, however, a considerable cost to maintaining these roads, and as of 1st January 2026, the Icelandic government has implemented a new per-kilometre charge system (kílómetragjald) to replace the traditional fuel-based taxes.
In this guide, we explain why this change has been brought in, how it works, and what to expect when you next embark on a self-drive adventure in Iceland.
What is the reason for the change in Iceland’s road tax system?
Iceland receives over two million foreign visitors per year, with many of them opting to rent a car to explore the country’s spellbinding landscapes. This, combined with the impact of wind, rain, snow and ice, contributes to significant wear and tear on Iceland’s roads.
Previously, the Icelandic government funded road maintenance through taxes embedded in the price of petrol and diesel. In the old system, you would pay at the pump, and the more fuel your vehicle consumed, the more tax you would contribute to the upkeep of Iceland’s roads.
However, the proliferation of electric and hybrid vehicles, while effective in terms of reducing carbon emissions, created an imbalance. These cars would still contribute to wear and tear on the roads without contributing to road maintenance via fuel-based taxes.
With the new per-kilometre charge system, road tax is now based on how far you drive, regardless of whether your car runs on petrol, diesel, electricity or hydrogen. This way, everyone who uses Iceland’s roads contributes fairly to their maintenance.
How does this impact your car rental?
When you collect your hire car in Iceland, you’ll be asked to provide a credit card for pre-authorisation as standard. Then, at the end of your trip, your rental company will check how far you’ve driven and calculate your road tax charge accordingly. This whole process will be handled by the rental company, so there’s no need for you to do anything else.
For standard passenger cars, the national base rate is 6.95 ISK (approx. £0.04) per kilometre driven. Most rental companies will charge a flat daily rate, which typically incorporates a small service charge to cover the administration costs.
For example:
- Hertz charges a total of 1,737 ISK (approx £10.40) up front per day, comprising 1,390 ISK road tax and 280 ISK (+VAT) service fee. This is based on driving 200 kilometres per day.
- Over the course of five days, this equates to 8,685 ISK (approx. £52.30), based on an estimate of 1,000 kilometres driven.
- When you return your hire car, your odometer will be checked to see how far you have actually driven over the course of your trip.
- If you have driven less than the total number of days multiplied by the 200-kilometre daily allowance, you’ll receive a proportional refund to your credit card.
- If you have driven more than the total number of days multiplied by the 200-kilometre daily allowance, you’ll be charged accordingly for the extra distance driven.
What does this look like in practice?
- Iceland’s Ring Road is 1,322 kilometres in total.
- If you were to drive it over the course of 10 days, you would be pre-charged for 2,000 kilometres (10 days x 200 kilometres): a total of 17,370 ISK (approx. £104.80)
- At the end of your trip, you would receive a refund for 678 kilometres when returning your hire car, totalling around 5,888 ISK (approx. £35.50)
In any case, the total road tax charge and service fee will be clearly communicated on your rental documentation, so you will be able to distinguish between the rental rate and the mandatory government tax contribution.
Please note that different rental providers have slightly different methods of administering the new per-kilometre car tax. The above example is merely an illustration to provide a rough idea of how it works.
What does the new system mean for fuel prices?
As a result of these changes, it’s estimated that fuel in Iceland is now around 30% cheaper – roughly 80-100 ISK (£0.48 – £0.60) less per litre than it used to be. This reduction in fuel prices will therefore go some way to offsetting the new per-kilometre charge.
What is not included in the new Icelandic road tax?
The new Icelandic road tax is exclusively for the maintenance of public road infrastructure. Other additional driving expenses still apply, including:
- Tunnel tolls
- Parking fees
- Speeding fines
Do I need to do anything differently when hiring a car in Iceland in 2026?
No, there’s nothing that actually changes in terms of what you have to do when you arrive in Iceland. The new road tax system is taken care of by your rental company – it’s just important to be aware of it in advance so you aren’t surprised by the additional charges. You still pick up your rental car as normal and enjoy exploring one of the most spectacular countries in the world.
At Best Served Scandinavia, we offer a wide range of self-drive itineraries throughout different regions in Iceland, each of which can be tailored to your individual requirements. Our specialists have travelled extensively throughout the country at different times of year, and are therefore perfectly placed to craft your ultimate Icelandic adventure.