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Iceland: Proposed temporary reduction of VAT rate on fuel products

Proposal would temporarily lower fuel VAT from 24% to 11% from May 1 through August 31, 2026

june 1, 2026

The government of Iceland in April 2026 introduced a bill (Icelandic) proposing amendments to the VAT law to temporarily reduce the VAT rate on fuel, which would apply from May 1, 2026, through August 31, 2026.

The proposal would temporarily lower the VAT rate on specified fuel products from 24% to 11% to mitigate inflationary pressures and rising fuel costs linked to international oil market volatility.

The bill would require fuel sellers to fully pass on the tax reduction to retail prices and grant enhanced monitoring and enforcement powers to the competition authority to address noncompliance.


For more information, contact a KPMG tax professional in Iceland:

Tina Paic | tinapaic@kpmg.is

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