The rental of hotel and guest rooms is always subject to VAT at the 11% rate, regardless of the length of stay.

1.1.1 Cancelled accommodation or no-show
If a customer cancels accommodation with limited refund rights, such that the operator retains part or all of the payment for the stay, VAT must nevertheless be charged on the payment at the 11% rate. The payment is considered to be so closely linked to the sale of accommodation that VAT applies to it as if it were a sale of accommodation. The same applies when a customer does not show up without cancelling the accommodation service (“no-show”).

The rental of campsites is also subject to VAT at the 11% rate, regardless of the length of stay. Access to electricity, sanitary facilities, and showers at a campsite is considered part of the accommodation service and is therefore subject to VAT at the same rate, regardless of whether such services are included in the campsite fee. If access to electricity, sanitary facilities, and showers is not connected to the sale of accommodation, that service is subject to VAT at the standard rate.

1.2.1 Cancelled accommodation or no-show
The same considerations apply here as in section 1.1.1.

Other accommodation services, apart from the rental of hotel and guest rooms and campsites, are subject to VAT at the 11% rate only when rented for periods shorter than one month. This includes, for example, accommodation in private homes (home-sharing), farm stays, fishing lodges, summer houses, and various types of guesthouses.

However, if a party is solely engaged in renting out property that does not qualify as hotel or guest accommodation, or as a campsite, for periods longer than one month, such activity is considered real estate rental, which is exempt from VAT, provided that the general conditions for real estate rental are met. In this context, it should be noted that the rental of facilities is subject to VAT at the 24% rate.

1.4.1 Accommodation establishments, campsites, etc.
Operators of accommodation establishments holding an operating license in categories II–IV, cf. Article 3 of Act No. 85/2007 on Restaurants, Accommodation and Entertainment, as well as operators of campsites and spaces for motorhomes, caravans, camper trailers, and mobile homes, are required to pay an accommodation tax for each unit of overnight accommodation sold.
This refers to the rental of accommodation for up to one day, including overnight stays. Accommodation refers to premises or areas, including on board cruise ships, rented for overnight stays where sleeping facilities are available or can be provided, and where the rental period is generally shorter than one month. The accommodation tax per overnight unit sold at licensed accommodation establishments (categories II–IV) shall be ISK 800.
The accommodation tax per overnight unit sold at campsites and spaces for motorhomes, caravans, camper trailers, and mobile homes shall be ISK 400.

1.4.2 Cruise ships in domestic voyages
Operators of domestic cruise voyages in Iceland must pay an accommodation tax for each passenger for each commenced 24-hour period the passenger stays on board the ship.
The accommodation tax per passenger per commenced 24-hour period shall be ISK 400.

1.4.3 Exemptions from accommodation tax
Parties selling accommodation as described in section 1.4.1, but who are not registered for VAT due to exemption from registration obligations, are not required to pay the accommodation tax. Furthermore, accommodation tax is not payable for accommodation used by crew and other staff on board cruise ships operating domestic voyages in Iceland.

1.4.4 VAT and timing of revenue recognition
The accommodation tax does not form part of the VAT taxable amount, and therefore VAT is not charged on the accommodation tax when an overnight unit is sold. Since the accommodation tax is not part of the taxable amount, operators may collect the tax at a different time than when the invoice for the accommodation is issued. This means the tax may be collected either upon the customer’s arrival or when the invoice is issued.

1.4.4.1 Cancelled accommodation or no-show
If an operator has collected the accommodation tax at the time of booking instead of upon the customer’s arrival, and the customer either cancels the booking with limited refund rights or does not show up (“no-show”), the collected accommodation tax must be refunded to the customer.
If the operator is unable to refund the customer, the tax must be remitted to the Treasury with the settlement for the period to which the original booking related or when the cancellation occurred, whichever comes first.

1.4.5 Settlement of accommodation tax
Settlement periods for the accommodation tax are two months at a time, i.e. January–February, March–April, etc. The due date is the fifth day of the second month following the end of the settlement period. The Iceland Revenue and Customs determines the format of reporting, and taxable parties must, without request, submit a report to the tax authorities on the number of overnight stays sold or the number of cruise ship passengers during the settlement period, and pay the tax to the Treasury collector no later than the due date. If the due date falls on a public holiday or non-working day, it is moved to the next working day.

Further information on accommodation tax.

Those operating cruise ships in international voyages are required to pay an infrastructure fee for each passenger on board the ship for each commenced 24-hour period that the ship stays in a port in Iceland or elsewhere within the customs territory of the state. The infrastructure fee per passenger per commenced 24-hour period shall be ISK 2,500.

1.5.1 Exemptions from the infrastructure fee
If a cruise ship in international voyage calls at a port in Iceland and it can be demonstrably proven that the ship was in distress due to collision, sea damage, illness, or hostilities, the infrastructure fee is not payable, cf. section 1.5. Furthermore, the infrastructure fee is not payable for crew and other staff on board.

1.5.2 Settlement of the infrastructure fee
The settlement period for the infrastructure fee is the time during which the ship is within the customs territory of the state. The due date is seven days after the ship leaves the customs territory. The Iceland Revenue and Customs determine the form of reporting, and taxable parties must, without request, submit a report to the tax authorities on the number of passengers during the settlement period and pay the fee to the Treasury collector no later than the due date. If the due date falls on a public holiday or non-working day, it is moved to the next working day.

The general rule is that if a party, to any extent, provides accommodation other than hotel and guest rooms or campsites for periods shorter than one month, they must charge VAT at the 11% rate on their activities.

A party that operates taxable accommodation services for part of the year and real estate rental for another part of the year is considered to be engaged in mixed activities, provided that they supply taxable accommodation services for five months per year or less.