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Vehicle insurance and road taxes

Vehicle road taxes and mandatory insurance premiums are fixed costs that are inevitable when running a car.

Car insurance

All cars must be insured with an insurance company for liability and accident insurance.

The purchase of other car insurance is optional, such as window and comprehensive insurance that compensates for damages to one's own car.

Liability insurance covers all damages and loss that others suffer by a car.

Accident insurance pays the driver of a car compensation of the driver is injured and also the owner of the car if the owner is a passenger in his own car.

On the transfer of ownership of cars, the buyer may state with which insurance company he wishes to to insure the car and notification of such is sent to the company in question.

Vehicle road tax

Vehicle road tax is a tax imposed on all vehicles registered in Iceland. The amount of the tax depends on the weight of the vehicle.

Vehicle road tax is paid twice a year and is collected by customs officials.

If vehicle road taxes are not paid on time, the police and registration entities may remove the registration plates from a car in which case it may not be used.

Those who receive disability or care benefits may be entitled to the cancellation of vehicle road tax. The same applies to old-age pensioners who receive a subsidy for the operation of a car.

Other fees

A processing fee is imposed on all vehicles and is collected annually at the same time as road taxes.

A kilometre fee is collected for vehicles and trailers exceeding a particular weight.

A traffic safety fee is paid on each examination or registration of a vehicle and is paid to the Icelandic Transport Authority.

Cars may be imported tax-free to Iceland on a temporary basis on the fulfillment of certain conditions.


Make sure that the insurance of a sold car is terminated and that a new car is insured immediately, e.g. by stating such in the ownership transfer notification.

You risk having the registration plates removed from the vehicle if the vehicle road tax is not paid on time.