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 Handles the Road Tax
The new national law requires all vehicle owners to report odometer readings and pay for every kilometer driven.
To ensure full compliance with Icelandic law while keeping the rental process efficient, Hertz Iceland manages all strict reporting and direct payments to the Icelandic Tax Authorities on your behalf. Due to the substantial administrative workload and operational systems required to manage this real-time tax reporting, a service fee is applied alongside the mandatory government tax.
2026 Road Tax & Service Fee Structure at Hertz Iceland
The charge applied to your rental agreement consists of two clear parts:
- Government Road Tax: The mandatory fee set by the Icelandic Parliament.
- Hertz Service Fee: Covers the administrative cost of processing, reporting, and remitting these taxes to the government.
The rates are calculated as follows:
| Item | Rate (Per Kilometer) |
| Government Road Tax | 6,95 ISK (Approx . 0.056 USD / 0.047 EUR) |
| Hertz Service Fee | 1,40 ISK (+ VAT) (Approx . 0.011 USD / 0.0095 EUR) |
> Hertz Insight: These charges ensure that your vehicle is fully compliant with the “Vegir okkar allra” legislation without you needing to register with the government personally.
How will this appear on my bill?
We believe in total transparency. The charges will be clearly visible on your rental documentation. You will see the Road Tax and Service Fee reflected on:
- Your rental agreement (when you pick up the car).
- Your final invoice (after you drop off).
This separation is intentional so you can clear distinguish the mandatory government contribution from the rental rate.
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 based on usage, the cost per liter 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 during your rental 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.
Why is there a service fee?
The new system requires rental agencies to handle complex data reporting to the Icelandic Tax Authorities for every individual vehicle and rental contract. The service fee of 1.4 ISK per km (+ VAT) (Approx . 0.011 USD / 0.0095 EUR) covers the operational costs of the systems and staff required to manage this reporting on your behalf, ensuring you don’t face fines or administrative issues.
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.
