On December 18, 2025, the Icelandic Parliament (Alþingi) officially passed a landmark bill transforming how road maintenance is funded. Effective January 1, 2026, Iceland will transition from a traditional fuel-tax system to a new kilometer-based road usage charge (kílómetragjald).
For travelers planning a road trip with Hertz Iceland in 2026, here is a comprehensive guide to understanding this new law, why it was introduced, and exactly how it affects your rental invoice.
Why the Change with adding the kilometers tax in Iceland?
Historically, the Icelandic government funded road infrastructure through taxes embedded in the price of petrol and diesel. If you drove a fuel-hungry car, you paid more towards road upkeep.
However, the rapid rise of Electric Vehicles (EVs) and Plug-in Hybrids (PHEVs) created an imbalance. While these vehicles are excellent for the environment, they still cause wear and tear on the roads without contributing via fuel taxes.
To solve this, the government launched the “Vegir okkar allra” (Our Roads to the Future) initiative. This new system ensures fairness:
- Old System: Tax based on what fuel you buy.
- New System (2026): Tax based on how far you drive.
By charging per kilometer, every vehicle—whether it runs on electricity, diesel, or hydrogen—contributes equally to the maintenance of Iceland’s challenging road network.
How Hertz Iceland Simplifies the Road Tax for You
While the national law calculates the tax strictly by kilometer (approx. 6.95 ISK/km for cars), handling this manually can be stressful for travelers. You shouldn’t have to worry about logging odometer readings or paying a separate government bill after your vacation ends.
Hertz Iceland has simplified this into a Fixed Daily Fee.
We handle all the complex reporting and payments to the Icelandic Tax Authorities on your behalf. You simply pay a transparent, flat rate per day, included in your rental agreement.
2026 Road Tax Fee Structure
The fee is determined by the vehicle’s engine type and weight category.
| Vehicle Category | Hertz Road Tax Fee (Daily) |
| Electric Vehicles (EV) | 1500 ISK |
| Plug-in Hybrid (PHEV) | 500 ISK |
| Diesel / Gasoline | ISK |
> Hertz Insight: This fee is charged upfront based on your booking dates. If you extend or shorten your booking, the total fee will be adjusted automatically to match your final rental dates.
How will this appear on my bill?
We believe in total transparency. You will see the “Road Tax Fee” listed as a separate line item on:
- Your online price breakdown (when you book).
- Your rental agreement (when you pick up the car).
- Your final invoice (after you drop off).
This separation is intentional so you can clearly distinguish between the Hertz rental rate and the mandatory government road contribution.
What Does This Law Mean for Fuel Prices?
This is the “good news” part of the legislation. Because the government is shifting the tax burden from the fuel pump to the odometer:
- Pump Prices Will Drop: The specific excise taxes on petrol and diesel are being removed or reduced.
- Net Result: While you now pay a separate Road Tax fee, the cost of filling up your rental car at the gas station will generally be lower than in previous years.
Critical Information: What is NOT Included
The kílómetragjald covers public road infrastructure only. It is vital to understand that this is NOT an “all-access pass” for driving expenses.
You must still pay separately for:
- Tunnel Tolls: specifically the Vaðlaheiðargöng tunnel in North Iceland.
- Parking Fees: Mandatory in downtown Reykjavík, Akureyri, and at major tourist sites like Þingvellir National Park, Seljalandsfoss, and Skaftafell.
- Entrance Fees: For private lagoons (Blue Lagoon, Sky Lagoon, etc.).
- Traffic Fines: Speeding tickets or parking violations.
FAQ: Frequently Asked Questions
Is this tax unique to Hertz Iceland?
No. The kilometer-based road tax is a national Icelandic law applicable to all vehicles on the road, regardless of the rental company, brand, or ownership status. Hertz Iceland simply facilitates the collection of this mandatory charge to ensure your rental is compliant with local laws.
Will I be charged extra later based on my exact kilometers?
No. As a Hertz renter, you satisfy the legal requirement by paying the fixed daily fee outlined in your contract. Hertz Iceland handles all strict odometer reporting and payments to the Icelandic authorities. You do not need to submit data or pay the government directly, and you will not receive a surprise bill later for “excess kilometers” regarding this tax.
When does the Iceland kilometer tax start?
The law comes into full effect on January 1, 2026. All rentals picking up on or after this date will be subject to the new road usage system.
Is driving an Electric Vehicle (EV) still cheaper in Iceland?
Yes. Even with the new kilometer tax, the Icelandic government has structured the costs so that EVs remain the most economical option. Electricity is significantly cheaper than fossil fuels in Iceland, and the total operating cost for an EV is still lower than a petrol car under the new system.
