In recent years, tax incentives have been granted for the purchase of eco-friendly cars in Iceland. In 2022, this support has been reduced: firstly when the VAT concession for plug-in hybrid cars expired in May 2022 and, secondly, with a reduction in the amount of the VAT concession for fully clean energy cars at year-end 2022 from ISK 1,560,000 to ISK 1,320,000 per vehicle.
The total amount of VAT incentives on electric cars is expected to amount to ISK 10.2 billion in 2023. This amount will decrease in 2024, but in order to continue supporting energy conversion projects, a total of ISK 7.5 billion will be provided to the Energy Fund (Orkusjóður) in 2024. This amount is expected to decrease again from 2026 onward to ISK 5 billion annually until 2028. It is emphasized that, although incentives for the purchase of electric vehicles will decrease, there will still be a financial incentive for households and companies to replace vehicles powered by fossil fuels due to lower operating costs.