Iceland’s New Road Tax in 2026 — What You Need to Know

From 1 January 2026, the Icelandic government will introduce a new road usage tax that applies to all vehicles driving on Icelandic roads, including rental cars. This change represents a shift away from fuel-based taxation toward a system that links road funding more closely to vehicle use.

Traditionally, road maintenance in Iceland has been funded through taxes included in petrol and diesel prices. As electric and hybrid vehicles have become more common, revenue from fuel taxes has decreased, even though all vehicles continue to use and wear the road network.

The new road tax ensures that every vehicle contributes fairly, regardless of fuel type.

Under the new system, all passenger vehicles — including petrol, diesel, hybrid, electric, and hydrogen cars — are subject to the road tax.

While the government model is based on distance driven, many car rental companies in Iceland apply the charge as a fixed daily amount to keep pricing simple and predictable for customers.

At Saga Car Rental, this is applied as a mandatory road tax fee of €10 per day, in line with Icelandic regulations.

When you rent a car in Iceland:

• A €10 per day road tax applies for each day of your rental.
• The fee is included in your rental charges or shown as a separate line item.
• There is no need to track mileage or make any separate payments to government authorities.
• This charge is required by law and is not an optional service.

Saga Car Rental takes care of the administrative handling of the road tax, allowing you to focus on your trip.

As part of the transition to the new system, certain fuel taxes are being removed. This has lowered petrol and diesel prices at the pump. While the road tax introduces a new charge, overall driving costs for petrol and diesel vehicles are expected to remain broadly comparable due to lower fuel prices. Driving electric vehicles will still be cheaper due to more vehicle efficiency and low electricity prices in Iceland.

Whether you are planning a short drive or a longer journey around Iceland, there are no additional steps required. Simply collect your vehicle and enjoy the road — the road tax is handled as part of your rental.