Iceland Travel Tips: Taxes, VAT Refunds, & Ways to Save

Magnús Jóhann Björnsson
07 Oct. 2025

This guide keeps tax talk simple. You’ll see what adds cost to your trip, where it shows up, and what you can claim back. Because you’re likely renting a car, we go deep on road‑related fees and give practical ways to avoid penalties.

Quick summary (what actually affects you)

• VAT (sales tax): 24% standard and 11% reduced. Prices you see in shops and online usually include VAT already.

• Lodging (“tourist”) tax: A small fixed fee per night on top of your room rate. It appears as a separate line on your hotel/guesthouse or campsite bill.

• VAT refunds: Visitors can get VAT back on goods they take out of Iceland (not on services like hotels, tours, fuel, or car rental). You’ll need a Tax Free form and to validate it at Keflavik Airport before you check luggage.

• Driving costs you’ll notice: the Vaðlaheiðargöng tunnel toll (north Iceland), parking/“regional” fees at certain sights and national parks, Reykjavik city parking zones, Keflavik Airport parking rules, and a per‑kilometer road tax if you rent an EV or plug‑in hybrid.

• Duty‑free: Buying within your allowance on arrival often saves money on alcohol/tobacco.

Blue tip: Bookmark Blue’s traveler page “Road & Parking Fees” for quick links, current examples, and how each fee is handled.

1) VAT in Iceland (plain and simple)

Iceland uses two VAT rates (Skatturinn):

• 24% standard rate

• 11% reduced rate for some items and services (e.g., accommodation, some passenger transport, books, certain cultural admissions)

As a traveler, you won’t be asked to “add tax at the register.” It’s already in the price. That’s why prices can feel high compared with countries where tax is added at checkout.

What this means for common trip items

• Hotels and guesthouses: Charged at the 11% VAT rate (plus the fixed lodging tax described later).

• Car rental: Charged at the 24% VAT rate. VAT on car hire is not refundable because car hire is a service. For coverage details and add‑ons, see our Car Rental Insurance Iceland.

• Tours/transport/food/fuel: Consider these services (or consumables). The VAT on them is baked in and not refundable.

Blue tip: Your Blue Car Rental price already includes VAT. There’s nothing extra to add at pickup.

2) The lodging (tourist) tax

On top of VAT, Iceland adds a fixed fee per night to stays. You’ll see it listed as “lodging tax” or similar on your invoice or booking confirmation. It applies to:

• Hotels and guesthouses (license categories II–IV)

• Campsites and mobile‑home/caravan lots

• Cruise ships on domestic voyages

You can’t claim it back. Budget for this per‑night amount across your itinerary.

Blue tip: Doing a multi‑stop Ring Road trip? Multiply the per‑night tax by your number of nights to keep your budget honest. It’s the same no matter where you sleep—city or countryside.

3) VAT refunds for travelers (how to actually get money back)

You can claim a VAT refund on goods you take out of the country in your luggage. You cannot claim VAT back on services (hotels, car rental, tours, restaurant bills, fuel, etc.).

The core rules

1. Minimum spend per receipt: You need to spend at least ISK 12,000 in one store on the same day.

2. Ask for a Tax Free form: Get it at the register and keep your original receipt stapled to it.

3. Keep goods unused and accessible: Pack them in your carry‑on so you can show them if asked.

4. Validate before you check bags: At Keflavik Airport (KEF) the VAT refund/validation point is in the arrivals hall (see KEF’s tax refund desk info). Large refunds may require a Customs stamp first.

5. Collect your refund: After validation, you’ll be directed to collect the refund or submit as instructed.

What qualifies?
Eligible: clothing, outdoor gear, souvenirs, packaged goods you’re exporting.
Not eligible: hotels, tours, car rental, restaurant meals, groceries you’ve consumed, fuel.

Timing tip: The airport desk gets busy at peak waves. Go before check‑in with your forms, receipts, passport, boarding pass, and the items.

Blue tip: If you know you’ll shop, try to bundle your purchases so each receipt clears the 12,000 ISK threshold. It’s easier to claim one big receipt than many small ones.

4) Driving costs, tolls, and parking: what to expect

Most of your Iceland time is on the road. Here’s a clear list of fees you may meet, and how to avoid penalties.

4.1 EV/PHEV road tax (per‑kilometer)

From 2024, Iceland funds part of its road network with a kilometer‑based road tax on electric, hydrogen, and plug‑in hybrid passenger cars:

• 6 ISK per kilometer for electric/hydrogen cars

• 2 ISK per kilometer for plug‑in hybrids

For rentals, Blue collects this road tax at the start of your rental so you don’t face a surprise later. The amount is estimated using average distances driven by renters, then adjusted by our terms where needed. Full details and the official reference are on our traveler page: Road & Parking Fees.

Blue tip: Booking an EV or PHEV? Ask us for the expected road‑tax amount for your route and dates. It makes budgeting simple.

4.2 The Vaðlaheiðargöng tunnel toll (north Iceland)

Iceland is almost toll‑free. The notable exception for visitors is the Vaðlaheiðargöng tunnel just east of Akureyri on the Ring Road.

• There are no toll booths. Payment is online by license plate (see official pricing).

• You can pay up to 24 hours before you drive through—or within 24 hours after.

• If you miss the window, the invoice goes to the registered owner (your rental company) with an added collection fee and the rental’s handling fee.

Should you use the tunnel?
It shortens the Ring Road by ~16 km and avoids an exposed mountain pass (Víkurskarð). In winter, the tunnel is usually the safer call. In calm summer weather, the free mountain route is fine and only a few minutes longer.

How to pay quickly

1. Note your license plate.

2. Go to the official payment site (linked from Blue’s page).

3. Pay once per direction if you go north and then back south.

Blue tip: If you think you’ll use the tunnel, pre‑pay online the evening before. If plans change, you still have the 24‑hour after window.

4.3 National parks and popular sites (parking/“regional” fees)

Some natural sites use camera‑based parking with plate recognition and online payment. Two big ones for most itineraries:

Þingvellir National Park (Golden Circle)

• Pay for the day. The fee covers all official lots inside the park.

• Pay at a machine on site or online (linked from Blue’s page) — see official parking info.

• Enforcement uses your license plate.

If you’re building a Golden Circle day, here’s our Thingvellir self‑drive guide.

Skaftafell & Jökulsárlón (Vatnajökull National Park)

• Day fee is valid until midnight.

• Pay at a machine on site or via the Parka app or website.

• The system reads your plate automatically.

For planning ideas nearby, see our Vatnajökull Glacier Self‑Drive Guide.

Other places with fees (examples): Reykjavik city center zones, Keflavik Airport car parks, Seljalandsfoss, Reynisfjara, Skógafoss, and more. Blue’s page keeps a current list and payment links.

If you forget to pay
Unpaid park fees are raised and billed to the vehicle owner later. As the registered owner, Blue must process the claim and identify the renter, which adds a handling fee on top of the overdue charge.

Blue tip: Install Parka for national parks and EasyPark for towns. Add your plate once. Start/stop sessions from your phone and keep the receipt emails.

4.4 Reykjavík city parking (zones)

Downtown Reykjavík uses four tariff zones (P1–P4) (see the city’s official Parking Service page). Prices and chargeable hours vary by zone. You can pay at meters or in apps; street signs show the zone number and hours.

Practical advice:

• In the core center (P1), assume higher prices and tighter time limits. For deeper tips, read our Parking in Iceland: Car Rental Reykjavík guide.

• If you’re stopping for food or photos, use the app and end the session when you drive away.

• Watch for multi‑level garages (e.g., Hafnartorg, Höfðatorg) where hourly rates differ from the street.

Blue tip: Apps add a small service fee, but they prevent overpaying or fines. For short hops, the app is cheaper than guessing at a meter.

4.5 Keflavík Airport (KEF) parking

KEF uses gated, license‑plate‑based parking. For a smooth airport experience, see Navigating Keflavik Airport. There are short‑stay lanes, a pick‑up zone, and longer‑stay lots with different walking distances to the terminal. Grace periods are short and charges scale quickly.

If you’re only dropping off: set a timer. If you’re collecting someone, consider the pick‑up area rather than looping the lanes.

Blue tip: Returning your rental and catching a flight? Decide in advance which lot you’ll use and how long you’ll need. Check KEF’s tariffs if you expect more than a quick drop.

4.6 Seasonal note: Landmannalaugar parking reservations

From June 20 to September 15, arrivals between 08:00 and 15:00 must reserve a parking slot at Landmannalaugar. Visiting outside those hours? No reservation required.

Blue tip: If your Highlands day trip is flexible, go before 08:00 or after 15:00 to skip the reservation requirement—or book the slot the night before.

4.7 Handling fees: why paying on time matters

If a toll or park fee goes unpaid, the operator bills the vehicle owner (your rental company). That creates admin work and adds a handling fee on top of the overdue amount. Paying on the spot, or in the official app, is the cheapest path every time.

Blue tip: Pay as you park or right after you pass a toll. Keep screenshots and email receipts.

5) Fuel taxes: why fuel feels pricey (and non‑refundable)

Fuel prices include multiple taxes and environmental charges. They’re part of pump prices, which is one reason fuel feels expensive in Iceland. There’s no refund on these for visitors. You can only lower the cost by driving smoothly, planning fuel stops, and choosing routes with fewer detours.

See our guide on how to refuel with confidence in Iceland.

Blue tip: Keep your tank topped up before long stretches. In winter and in the Highlands, leave a bigger buffer.

6) Duty‑free basics (arrivals and departures)

Iceland lets you buy duty‑free on arrival at KEF. This is helpful if you plan to enjoy a drink during your trip. Prices are often lower than in town, but stay within your allowance. Duty‑free shops at KEF are typically open 24/7.

Allowance reminder: Alcohol and tobacco limits are strict. If you’re unsure, check Iceland Customs’ guidance before you shop. Keep your duty‑free receipt until you clear Customs.

Blue tip: If your first leg after KEF is a long drive, do your duty‑free stop as you land. It saves time later.

7) Airport taxes and fees—do you pay them at the airport?

You won’t pay airport taxes at a counter. Isavia (the airport operator) collects airport charges through the airlines, and you see them built into your ticket. That’s why your e‑ticket shows “taxes/fees/charges.” Nothing to plan for here.

8) What you can avoid, reduce, or claim back

Avoid surcharges:

• Pay the Vaðlaheiðargöng toll online within 24 hours of driving through (or pre‑pay).

• Pay national‑park/attraction parking before you leave the site.

• Use Parka and EasyPark. Add your plate and keep receipts.

Reduce unavoidable costs:

• Lodging tax is fixed per night. Fewer nights = less tax.

• Fuel taxes are built into pump prices. Drive efficiently; plan smarter routes; consider a fuel‑efficient class.

Claim back:

• VAT on goods you export if each receipt is ≥ ISK 12,000, with a Tax Free form validated before check‑in at KEF.

Blue tip: Build a five‑minute pause into your routine when you park or pass a toll. Pay right then. Future‑you will thank you.

9) Blue Car Rental: what’s included vs. what you handle

Included in your Blue price

• VAT at the applicable rate

• The vehicle class you booked and the protections you selected

• For EVs and PHEVs: we collect the kilometer‑based road tax at the start (estimated from average renter distances) so you don’t face a late surprise. Details here: Road & Parking Fees

You handle directly on the road

• Vaðlaheiðargöng tunnel (if you use it)

• Parking/“regional” fees at national parks and sites

• Reykjavík city parking zones and private garages

• Keflavík Airport parking, if you stop there 

• Fuel

If a fee isn’t paid
Operators bill the registered owner (Blue). We must identify the renter and settle the claim, which adds a handling fee on top of the overdue amount. Paying directly saves you money and time.

10) Checklists you can save

VAT refund checklist (KEF)

• Spend ≥ ISK 12,000 in one store on the same day

• Ask for a Tax Free form and keep the original receipt

• Keep goods unused and in your carry‑on

• Validate before you check baggage (arrivals hall)

• For larger refunds, get a Customs stamp if required

• Collect your refund or submit per the desk’s instructions

Driving/parking/toll checklist

• Install Parka and EasyPark; add your license plate

• If using Vaðlaheiðargöng, pre‑pay or pay within 24 hours after

• At Þingvellir or Skaftafell/Jökulsárlón, pay for the day before you leave

• In Reykjavík, check your zone (P1–P4) and start a session in the app

• Heading to Landmannalaugar (Jun 20–Sep 15, 08:00–15:00)? Reserve parking

Blue rental pickup checklist

• Note your plate number (helps with tolls and parking apps)

• Ask about the EV/PHEV road‑tax estimate if you booked an electric or plug‑in hybrid

• Ask where to find your Blue Road & Parking Fees link on your phone

11) Common mistakes to avoid

• Checking bags before validation. You may need to show items to validate your VAT refund.

• Multiple small shopping receipts. Combine purchases so each receipt clears the 12,000 ISK threshold.

• Forgetting the tunnel toll. Set a phone reminder for Vaðlaheiðargöng payment.

• Leaving a national park without paying. Camera systems track plates; the bill grows later.

• Assuming everything is refundable. Services aren’t—only exported goods qualify for VAT refunds.

• Skipping parking apps. Parka and EasyPark make it easy to pay the right amount and keep proof.

12) Simple budget examples

These ballpark examples show where taxes and fees appear. Adjust numbers to your dates and vehicle class.

Example A — 3 nights in Reykjavík + Golden Circle day

• Hotel: nightly rate (incl. 11% VAT) + lodging tax per night

• Car rental (2WD): daily rate (incl. 24% VAT)

• Reykjavík parking: app sessions in P2–P4 for short stops

• Thingvellir: one day parking fee (covers all park lots for the day)

• Food & coffee: VAT included; no refunds

• Souvenirs/clothes: aim for ≥ 12,000 ISK on a single receipt if you want a VAT refund

Example B — 7‑day Ring Road with one Vaðlaheiðargöng crossing

• Car rental (SUV/4×4): daily rate (incl. 24% VAT)

• Lodging: per‑night room rate + lodging tax

• Tunnel: pay online once (northbound), and again if you return the same way

• National parks/attractions: day/“regional” fees where posted

• Fuel: tax included, price varies by area

• Shopping: anything you plan to take home—bundle receipts for VAT refund

Example C — EV city + South Coast weekend

• EV rental: daily rate (incl. VAT) + EV road‑tax estimate collected at pickup

• Reykjavík parking: use apps; avoid P1 at peak times

• South Coast sights: pay posted day fees (e.g., Seljalandsfoss, national‑park lots)

• Duty‑free on arrival: within allowance

• Shopping: one larger purchase (e.g., shell jacket) to clear VAT refund minimum

13) A clean plan you can follow

Arrival day

• Buy duty‑free (within allowance).

• Pick up your Blue car. Install Parka/EasyPark and add your plate.

• If you’re picking up at KEF, skim our Car Hire at Keflavik International Airport.

• If you’ll use the Akureyri tunnel, pre‑pay now.

Sightseeing days

• Pay park fees as you arrive or via app before you leave.

• Keep receipts in one spot on your phone.

• Combine souvenir purchases to hit 12,000 ISK on one receipt.

Departure day

• Before check‑in, validate VAT forms in the arrivals hall.

• Return your car and head to security without last‑minute admin.

Final word

Taxes and road fees in Iceland are straightforward once you know the rules. Pay posted fees while you’re there, bundle shopping for VAT refunds, and keep a couple of apps on your phone. You’ll save money—and avoid the admin—without thinking about it twice. Pre‑pay the Vaðlaheiðargöng toll or pay within 24 hours, and settle national‑park parking before you leave. Add your plate to Parka/EasyPark, keep VAT receipts together, and validate at KEF before check‑in.