The reform, approved by the Alþingi in December 2025 and effective from 1 January 2026, is among a small number of national, fuel-neutral per-kilometre charging models internationally to be applied across an entire fleet.

It follows a phased approach that began with a kilometre fee for electric vehicles and plug-in hybrids in early 2024 before being widened fleetwide at the start of 2026.

Under the updated framework, charges are primarily weight-based, with vehicles in the same weight category paying the same per-kilometre rate regardless of whether they run on petrol, diesel, hybrid powertrains or electricity.

For passenger cars up to 3.5 tonnes, the published base rate is ISK 6.95 per kilometre (about €0.05), while motorcycles are charged at a discounted rate that is 40% lower than passenger cars at ISK 4.15 per kilometre (about €0.03).

The rate structure spans 29 weight categories, rising to ISK 45.17 per kilometre for the heaviest vehicles (about €0.31).

The Icelandic government has framed the policy as a modernisation of road funding as vehicle fleets electrify and become more fuel efficient, eroding receipts from fuel duties.

Government information on the policy states that, measured per kilometre driven, revenues from road-use charges fell to around ISK 7 per kilometre by 2023 (about €0.05), down 43% compared with 2006.

In August 2025, Iceland’s finance minister Daði Már Kristófersson argued that the country’s road funding model needed reform because revenues had fallen and were “distributed very unevenly among users of the road system”.

Operationally, the scheme is designed to be “low-tech”, relying on odometer readings rather than in-vehicle telematics or GNSS tracking.

Vehicle owners must submit mileage readings at least once a year, with billing issued monthly in a utility-style model.

The government says readings can be updated more frequently via Ísland.is, including at 30-day intervals, to keep bills aligned with actual usage.

Odometer readings can also be captured during vehicle inspections, with more frequent reporting applying to some heavier vehicle classes.

The government has also clarified that the fee applies to vehicles required to be registered and inspected for road use, with certain primarily off-road machinery and non-road vehicle types excluded from the scheme.

Alongside the kilometre fee, Iceland has emphasised that the move is accompanied by changes to pump-price taxation.

The ‘Our roads to the future’ programme information site states that fuel taxes on petrol and diesel are removed as part of the transition, while carbon tax remains part of the pump price and is updated to preserve incentives for lower-emission choices.

The government has also published indicative reductions at the pump as the fuel-tax element is removed, stating that petrol could fall by around ISK 95–105 per litre (about €0.65–€0.71) and diesel by around ISK 80–88 per litre (about €0.54–€0.60), depending on fuel blending.

The scheme also includes design features intended to smooth implementation. For example, the government has confirmed that trailers under 3.5 tonnes are exempt, while heavier trailers are introduced in phases.

Early compliance signals have been positive. Iceland’s government said that around 60,000 registrations were received shortly after the law was passed, with the first due date for payment set for 1 February 2026.

The system is designed to apply nationwide and to all road users in Iceland, including foreign visitors and rental cars.

The government information site says rental companies will be responsible for paying the charge based on odometer readings or a daily rental rate, while tourists temporarily importing their own vehicles pay a fixed road usage fee for the duration of their stay.

At the same time, Iceland has clarified that the fee is intended to reflect road use in Iceland, not abroad.

The government information site notes that motorists can seek a deduction for kilometres driven outside Iceland if they can provide evidence and document odometer readings at departure and return.

Euro conversions are approximate, using the Central Bank of Iceland’s published exchange rate of €1 = ISK 147.20