Public transport on land, by air, and by sea is exempt from value-added tax (VAT). The exemption also covers organized transport services for disabled people, organized transport services for the elderly, organized transport of schoolchildren, ambulance services, and taxi services. To the extent that passenger transport is exempt from VAT, the exemption also applies to passengers’ luggage and the transport of vehicles directly connected to passenger transport. In this context, luggage includes, among other things, bicycles and wheelchairs. Transport of luggage without passengers is subject to VAT at the 24% rate.

Other passenger transport services than those mentioned above are subject to VAT at the 11% rate, including various types of guided group tours for recreational purposes, such as horseback riding tours, snowmobile tours, ATV tours, whale-watching tours, sea angling trips, and sightseeing tours. The 11% VAT rate also applies to passengers’ luggage and the use of equipment provided by the tour organizer in such guided recreational group tours. However, it is considered taxable rental of movable property at the 24% VAT rate if someone other than the tour organizer provides equipment and vehicles for the trip, and if the right of use is not limited exclusively to that trip.

The sale of passenger transport between countries is considered exempt turnover, meaning it is taxable but subject to a zero rate of VAT. Those engaged in international passenger transport must therefore notify the tax authorities (Skatturinn) of their activities for VAT registration, but they are not required to charge VAT on such transactions. The right to deduct input VAT on purchases related to the activity is maintained, unlike in the case of public transport, even though no VAT is charged on the transactions.

Tour guiding services are subject to VAT at the 11% rate, including services provided by independent professional tour guides. This applies regardless of whether they sell their services to parties engaged in taxable or exempt activities.

VAT-liable services of a driver providing driving services may fall under either the 11% or the 24% VAT rate, as explained in more detail below.

2.4.1 Driver with own vehicle
If a driver sells passenger transport services using their own vehicle to a tourism company engaged in VAT-liable passenger transport, their service is subject to VAT at the 11% rate. If a driver sells passenger transport services using their own vehicle to a party engaged in exempt public transport, their service is not subject to VAT. In cases where a party sells passenger transport that is both taxable and exempt, the activity is considered mixed. See further details in Section 8.1 on mixed supplies.

2.4.2 Driver without own vehicle
Services of a driver without their own vehicle are considered driving services and are always subject to VAT at the 24% rate. In this case, it does not matter whether the services are sold in connection with VAT-liable passenger transport or passenger transport that is exempt from VAT, such as public transport.

2.4.3 Combined services of tour guide and driver by the same party
If a party simultaneously sells driving services without their own vehicle (subject to the 24% rate) and tour guiding services (subject to the 11% rate), each service must be itemized separately on the invoice. If no itemization appears on the invoice, VAT must be applied to the entire service at the 24% rate. If a party sells passenger transport using their own vehicle and tour guiding services at the same time, each service falls under the 11% rate, and itemization on the invoice is therefore not required. Further information on mixed supplies can be found in Section 8.1.