Iceland’s New Cruise Passenger Tax Sparks Decline in Ship Visits and Tourism Revenue

Published on November 3, 2025

The introduction of a new infrastructure tax in Iceland in early 2025 has created major ripples across the cruise tourism sector, leading to a notable reduction in ship calls and future bookings. This new daily passenger fee has reportedly pushed many cruise lines to reconsider their itineraries, directly affecting rural communities that depend heavily on the seasonal arrival of international visitors. According to data compiled by Cruise Iceland, ports across the island have recorded a drastic fall in advance reservations, with some locations expecting more than a 50 percent decline in cruise ship visits by 2027. Local tourism operators, businesses, and community leaders have expressed growing concern over the potential economic fallout, as these ports have long been gateways for travelers exploring Iceland’s rugged coastlines and pristine natural attractions. While the government initially projected the tax to generate over $10 million in state revenue, early trends suggest that the unintended consequences could outweigh the benefits, particularly for smaller towns outside Reykjavik that rely on the steady flow of maritime tourism.

Cruise Ship Departures Linked to New Tax Policy

The recent introduction of Iceland’s cruise infrastructure tax has become a contentious issue within the nation’s tourism sector. Enforced from January 1, 2025, the policy requires every cruise passenger visiting an Icelandic port to pay a daily charge of 2,500 ISK, approximately $18. While the measure was designed to strengthen the country’s tourism infrastructure and provide additional funding for local projects, its effects have been far-reaching. Industry observers have noted that several cruise companies, including those operating large mainstream vessels such as the Norwegian Prima, have begun scaling back or revising their routes to avoid Icelandic stops.

This has not only affected Iceland’s reputation as a cruise-friendly destination but has also sparked debate about the long-term sustainability of its tourism strategy. The policy’s timing, coinciding with a period of global cruise industry recovery, has made its impact particularly pronounced.

Rural Communities Face Economic Setbacks

One of the most visible outcomes of the new tax has been the growing economic distress among Iceland’s rural communities. These smaller ports, many located along the northern and eastern coastlines, have historically relied on cruise tourism to sustain local economies through seasonal income, hospitality services, and cultural tourism. According to the Iceland Monitor, the decline in ship visits has resulted in significant revenue losses for local businesses ranging from tour operators and souvenir vendors to restaurants and guesthouses.

The managing director of Cruise Iceland, Sigurður Jökull Ólafsson, described the situation as especially challenging for regions outside the capital. While Reykjavik continues to attract tourists through air travel and domestic cruise docking, smaller harbors are now experiencing reduced arrivals, which translates to fewer tourists exploring Iceland’s natural attractions like fjords, hot springs, and waterfalls. The shift threatens to widen the economic gap between urban and rural Iceland, undermining years of effort to diversify the country’s tourism footprint beyond the capital.

A Sharp Decline in Bookings Through 2027

Data shared by Cruise Iceland with the Parliamentary Committee on Economic Affairs and Trade revealed a striking trend. Cruise ship calls and future bookings have fallen sharply since the introduction of the new policy. In some cases, advance bookings through 2027 have plummeted by more than 50 percent, an alarming figure for a country that has positioned itself as a key destination in North Atlantic cruise itineraries.

This downturn represents a potential setback not only for tourism but also for Iceland’s broader economy, which benefits from port fees, passenger spending, and logistical operations linked to cruise travel. The reduced demand also threatens the nation’s goal of expanding its tourism offerings to include sustainable maritime tourism and Arctic exploration cruises, sectors that had been growing steadily before the new tax took effect.

Industry Concerns and Warnings Ignored

Concerns about the proposed infrastructure fee were raised well before its implementation. In late 2024, when Iceland’s government announced its plan to impose the tax, several cruise operators and tourism organizations expressed apprehension about its potential consequences. Early in 2025, Cruise Iceland officially warned that the high rate could make Iceland less competitive compared to neighboring destinations such as Norway, Greenland, and the Faroe Islands, which maintain lower port charges.

MSC Cruises’ Port Operations Director, Francesco de Curtis, also emphasized that the fee could influence route planning decisions, as cruise companies carefully evaluate operational costs when designing itineraries. Despite these warnings, the policy was enacted with expectations of generating substantial state revenue. However, with ship visits declining and forward bookings collapsing, the anticipated benefits appear increasingly uncertain.

Comparisons with Neighboring Countries

The Iceland Monitor highlighted that Iceland’s new tax rate is significantly higher than comparable fees in nearby countries. In contrast, Scandinavian nations such as Norway and Denmark apply more modest environmental or port usage charges, which are typically absorbed within cruise line operating budgets. These differences make Iceland a less attractive option for cruise operators seeking cost-efficient routes in Northern Europe.

Furthermore, Iceland’s unique geographic position—being a midway point between North America and mainland Europe—had long made it a favored stopover for transatlantic cruise itineraries. However, with the new tax in place, many cruise lines may now opt for alternative routes through the British Isles or Norwegian fjords, bypassing Iceland altogether.

Tourism Sustainability vs. Economic Viability

Supporters of the new infrastructure tax have defended it as a necessary step toward promoting sustainable tourism. The revenue collected, they argue, could be reinvested in improving port facilities, maintaining environmental standards, and managing tourist inflows more responsibly. However, critics contend that the policy lacks balance and fails to consider the fragile dependence of local communities on cruise tourism.

While Iceland has been praised globally for its efforts to protect natural resources and combat over-tourism, the new fee may inadvertently harm the very communities it seeks to help. The economic benefits of cruise tourism extend beyond direct taxation, including job creation, local spending, and international visibility. Without these inflows, smaller Icelandic ports may find it increasingly difficult to maintain operations and promote regional travel.

Future Outlook for Iceland’s Cruise Sector

The long-term outlook for Iceland’s cruise tourism remains uncertain. With over half of forward bookings already withdrawn in some areas, the recovery may take several years unless adjustments are made to the existing tax policy. Industry experts have called for a review of the fee structure to align Iceland’s charges with regional norms, ensuring that the country remains competitive in the global cruise market.

Meanwhile, local authorities are being urged to explore alternative economic opportunities and promote land-based tourism initiatives that could offset the decline in cruise-related income. However, for many small towns that have relied on the annual arrival of thousands of passengers, the road ahead appears increasingly challenging.

The introduction of Iceland’s infrastructure tax was envisioned as a tool for sustainable development and improved tourism infrastructure. However, the unfolding consequences suggest that the policy may have inadvertently discouraged cruise operators, reduced tourism inflows, and strained local economies. As Iceland continues to balance environmental preservation with economic growth, the experience serves as a crucial reminder of how even well-intentioned fiscal measures can reshape the dynamics of global travel and tourism when not carefully aligned with industry realities.