Iceland considers ending duty-free status for smaller cruise ships amid industry concerns

Smaller cruise ships operating in Iceland will lose their duty-free status at the end of the year unless changes are made. This shift has raised concerns among industry stakeholders, particularly those in the hotel and hospitality sector, who welcome the decision as a means to level the playing field against what they describe as “floating hotels.”

Sigurður Jökull Ólafsson, Chairman of Cruise Iceland, warns that the removal of duty-free status could lead to significant revenue loss for the country as fewer ships are likely to visit. He argues that the recommendation is for a two-year extension or a specialized passenger tax to maintain the current operational model. Currently, expedition ships enjoy duty-free purchases of goods and fuel bought in Iceland, while local hotels face higher taxation.

Ólafsson advocates for a tax that could contribute to community development at each port or destination, allowing for increased revenue from tourists without imposing additional costs on cruise companies. He estimates that the tourism sector could lose around 10.7 billion ISK if the current system is discarded.

Meanwhile, hotel and hospitality enterprises argue that they are disproportionately burdened by taxes compared to cruising operators, which could skew competition and impact their business viability. They believe it is essential to eliminate preferential treatment for specific tourist groups, advocating for a fairer taxation approach that aligns with Iceland’s tourism strategy, promoting sustainable year-round tourism rather than a focus on peak-season visitors.

Concerns extend to labor implications, as crew members on cruise ships often do not contribute to the local tax base, contrasting with hotel staff who are subject to Icelandic labor laws and taxes.