The change in law was approved on December 16, 2023, and came into effect on January 1, 2024.
Under the legislation, operators are required to pay a charge of ISK 1,000 per cabin for each night their ship stays in port, or elsewhere in the state's customs territory. Exemption applies only if a trip was fully paid before January 1.
‘Not opposed to reasonable taxes’
‘AECO is not generally opposed to reasonable taxes, especially if they contribute to the development of infrastructure and sustainable tourism,’ the association’s assistant director Anders La Cour Vahl told Seatrade Cruise News.
‘In this case the taxes, according to the Icelandic parliament, aim to generate income to promote the development, maintenance and protection of popular tourist destinations, protected areas and national parks and generate income to protect the country's nature…However, the time frame has been too short. Introducing a new taxation or any other major change to the operational framework with almost immediate effect is very challenging for any industry… Since our members plan and sell their expedition cruises two to three years in advance, they need predictability in these kinds of processes.’
He added, ‘The timeframe for planning cruises is also the reason why it’s too early to know the potential consequences of the new tax. ’
A ‘retrofitted’ measure
Pétur Ólafsson, chairman for Cruise Iceland and port director at Akureyri port, shares La Cour Vahl’s sentiments, noting that while ‘fair taxation aligns with the sector's objective to operate in harmony with stakeholders,’ a reasonable adjustment period is needed. The association previously warned the legislature about the need for a sufficient implementation period.
‘This is essentially a retrofitted tax, considering that cruise companies plan and sell trips up to two years in advance,’ he informed Seatrade Cruise. ‘In many cases, it is more feasible to change the destination than to attempt to levy the additional tax after travellers have already partially paid for their trips.’
Some bookings at risk
Cruise Iceland is yet to see cancellations or changes in planned trips due to the taxation, but expects operators to pull the plug on the ‘most sensitive’ 2024 bookings. ‘These are the trips that are not fully booked, have a low yield, or involve many harbour calls,’ Ólafsson said. ‘Typically, this will adversely impact new destinations, especially affecting the more remote areas in Iceland… The fact of the matter is that the tax will always hit rural areas the hardest. It makes very little difference for the capital area. This we find is totally contrary to previous aims of the government, which has generally been to support tourism in rural Iceland.’
Supporting rural communities
There have been significant benefits from cruise ships visiting Iceland, reports Cruise Iceland, which predicts that 2024 will see Icelanders recognize the vital role cruise ships play in sustaining rural communities, prompting efforts to enhance guest services. ‘The majority of the population in places like Akureyri acknowledge the importance of the cruise sector for the area,’ revealed Ólafsson. ‘The spending per traveller surpasses expectations, with each individual spending 28k ISK in each harbour for those arriving and departing by ship, and 98k ISK for those using air travel for either leg.
‘Estimated total revenues for 2023 are 53b ISK, excluding taxes and tariffs, with a substantial portion spent in rural Iceland, providing crucial support to local economies.’
A survey conducted by the Tourism Research Center for Faxaflóhafnir showed cruise passengers contributed almost 14b ISK to the economy in the capital area in 2023. The year saw 306,211 passengers arrive in Reykjavík and Akranes on cruise ships – 148,615 of them turnaround passengers.
‘Surprisingly, 17% of ship travellers return for another journey by ship… Airlines have seen a business of 11b ISK from mixed-mode tourists, with 3.4b ISK going towards hotels in Reykjavik in 2023 only,’ Ólafsson added.
Obstacles to overcome
Last summer, the most significant challenge for Iceland was emissions during windless days in deep fjords, such as in Ísafjörður and Akureyri. Harbours are actively working on shore power to address these issues, with connections already established in Hafnarfjörður and Reykjavík. In addition, harbours are introducing the Environmental Port Index, where low-emission ships benefit from lower harbour fees, while high-emission ships incur additional charges.
Concludes Ólafsson, ‘Ensuring the full functionality of scrubbers is crucial, as past experiences revealed issues with machinery during the previous summer. Public surveys also indicate trust in the harbours' ability to effectively manage the cruise ship sector so it is clear we enjoyed a very good year. It is therefore a pity to see the government introduce new challenges for a sector that is so important for the people of Iceland.’
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