From 1 January 2026, a new kilometer-based road tax will apply to all vehicles driving on Icelandic roads, including rental cars. This national system, known in Icelandic as kílómetragjald, replaces part of the traditional fuel tax with a usage-based model.
If you are planning to rent a car in Iceland with Dollar Car Rental Iceland, this guide explains what the road tax is, how it works, and how it affects your rental in simple, transparent terms.
What Is the New Iceland Road Tax?
The Iceland Road Tax is a government-mandated road usage fee calculated based on:
- The number of kilometers driven
- The weight category of the vehicle
It applies to all vehicles using Icelandic roads, regardless of fuel type. Petrol, diesel, hybrid, and electric vehicles are all included under the same system.
This is not a fee introduced by Dollar Car Rental Iceland. It is a legal requirement set by Icelandic authorities to ensure fair contributions toward road maintenance and future infrastructure.
Why Iceland Introduced a Kilometer-Based Road Tax
Traditionally, road maintenance in Iceland was funded mainly through fuel taxes. As more fuel-efficient and electric vehicles enter the market, fuel tax revenue no longer reflects actual road usage.
The kilometer-based system ensures that:
- All road users contribute fairly based on how much they drive
- Road funding remains stable as vehicle technology changes
- Iceland’s roads can be properly maintained despite heavy tourism and harsh weather conditions
How the Road Tax Is Calculated
The road tax is calculated per kilometer driven and adjusted according to the vehicle’s weight class. Passenger cars and standard SUVs fall into the lower weight categories, while heavier vehicles are charged at higher rates.
You do not need to calculate anything yourself. The distance driven is recorded during your rental, and the applicable road tax is calculated automatically.
How Dollar Car Rental Iceland Applies the Road Tax
When you rent a car with Dollar Car Rental Iceland, the road tax is handled clearly and transparently:
- It is calculated based on actual kilometers driven
- A Dollar Service Fee is applied which covers the administrative cost of processing, reporting, and remitting these taxes to the government.
- You will see it included in your final rental invoice
| Rate (Per KM) | |
| Government Road Tax | 6.95 ISK (Approx . 0.056 USD / 0.047 EUR) |
| Dollar Service Fee | 1.40 ISK (+ VAT) (Approx . 0.011 USD / 0.0095 EUR) |
Is the Road Tax Included in the Rental Price?
The road tax is not part of the base daily rental rate, but it is included in the final pricing breakdown shown during booking and on your invoice.
This ensures full transparency and allows you to clearly see which costs are rental charges and which are government-mandated taxes.
Who Has to Pay the Road Tax?
The kilometer-based road tax applies to:
- Icelandic residents
- International visitors
- All rental car customers
There are no exemptions based on nationality, length of stay, or rental company. Anyone driving on Icelandic roads contributes under the same system.
What the Road Tax Does Not Cover
The road tax only covers road usage and infrastructure funding. It does not replace other potential travel costs, such as:
- Toll roads or tunnels
- Parking fees
- National park or attraction entrance fees
- Traffic fines or penalties
These costs, if applicable, are paid separately.
What This Means for Your Iceland Road Trip
For travelers, the system is designed to be simple:
- No registration or paperwork is required from you
- The tax is calculated automatically based on driving distance
- Dollar Car Rental Iceland handles compliance with the law
You can focus on enjoying your road trip, whether you are driving the Ring Road, exploring the South Coast, or heading into the countryside.
Final Thoughts
Iceland’s new kilometer-based road tax is a nationwide change that affects all drivers equally. At Dollar Car Rental Iceland, the fee is applied transparently, fairly, and in full compliance with Icelandic law.
There are no hidden charges and no unexpected surprises. You drive, explore Iceland at your own pace, and the road tax is calculated based on how much you actually use the roads.
FAQ
- When does the Iceland Road Tax start?
The kilometer-based road tax applies to all rentals starting 1 January 2026.
- Does the road tax apply to electric and hybrid cars?
Yes. The tax applies to all vehicles, regardless of fuel type.
- Do I need to do anything to pay the road tax?
No. Dollar Car Rental Iceland calculates and applies the fee automatically based on kilometers driven.
- Is this a fee set by Dollar?
No. This is a government-mandated tax required by Icelandic law.