Iceland’s New Road Tax Explained (2026): What Every Tourist Needs to Know

Planning to rent a car in Iceland? Learn how Iceland’s new road tax works, why it was introduced, how it affects tourists, and how you can save money on your rental. I’ll also explain why not all rental car companies charge the fee the same way and share my recommendations after living in Iceland for the past 10 years. One of the biggest reasons I recommend renting a car in Iceland is the freedom it gives you. Some of my favorite memories have come from pulling over at an unexpected waterfall, taking a detour because someone mentioned a hidden canyon, or completely changing my plans after seeing that the weather was better in another part of the country. Those spontaneous moments are often the highlights of an Iceland trip. That’s why, when Iceland introduced a new road fee at the beginning of 2026, I immediately started getting questions from members of the All Things Iceland community. People wanted to know: What exactly is Iceland’s new road tax? Why did Iceland introduce the road tax fee? Does it apply to tourists? How much will it cost? Should I still rent a car? How to budget for Iceland’s new road tax fee How can you save on a rental car in Iceland? If you’ve been wondering the same thing, you’re definitely not alone. In this guide, I’ll explain everything you need to know about Iceland’s new road fee, including why it was introduced, how it works, how it affects tourists renting cars and camper vans, how different rental companies handle the fee, and some practical ways to save money while planning your Iceland road trip. https://youtu.be/oqXebmLiA38 What Is Iceland’s New Road Tax? Although you’ll often hear people, including me, refer to it as Iceland’s new road tax, the official name is the kilometer fee, or kílómetragjald in Icelandic. The fee officially came into effect on January 1, 2026, and it’s designed to help fund Iceland’s road infrastructure in a different way than before. Under the standard government system, most passenger vehicles are charged 6.95 ISK per kilometer driven, although rates vary depending on the vehicle’s weight and classification. Unlike a toll road where you stop to pay at a booth, this fee is based on the total number of kilometers a vehicle travels. For Icelandic residents who own a vehicle, the fee is reported and paid according to government regulations. For visitors, however, the process is much simpler because your rental company handles it for you. That means you don’t have to register with the Icelandic government or report your mileage yourself. Instead, the rental company collects the fee as part of your rental agreement before paying it to the government. This is where many travelers become confused because not every rental company chooses to pass that fee on in the same way. I’ll cover that in detail a little later because understanding this difference can make budgeting your trip much easier. Experience Tip: One thing I’ve noticed after helping thousands of travelers plan trips to Iceland is that most people assume every rental company calculates this fee exactly the same way. That