Laugarás Lagoon reassesses expansion as VAT rise looms

Laugarás Lagoon is reconsidering its next steps and further investment in response to a proposed increase in value-added tax on bathing lagoons from 11% to 24%, its managing director told mbl.is. The lagoon opened in autumn 2025 near Iðubrú bridge.

Managing director Bryndís Björnsdóttir said the company had planned further development, including a hotel and other accommodation alongside the lagoon and Ylja restaurant. The aim was to build a year-round destination that creates jobs and economic value in the region.

The business has operated for less than a year and is still building its market and establishing its operations, she said. It needs both Icelandic and international visitors, with enough demand throughout the year to operate sustainably. Its location on the Golden Circle, near some of Iceland’s most visited natural attractions, was an important factor in the plan to attract international visitors and support year-round employment.

Uncertainty over investment

Björnsdóttir said the plans aligned with the government’s tourism policy and action plan through 2030, which emphasises spreading visitors more evenly across the country and throughout the year, improving the sector’s competitiveness and increasing benefits for communities nationwide.

She said businesses investing outside the capital region help make that policy a reality by giving visitors reasons to travel beyond the capital, creating demand in winter and supporting year-round jobs. Laugarás Lagoon was one such investment, she said.

Demand in tourism can change quickly and be vulnerable to external conditions, she said, adding that greater uncertainty weighs especially heavily on a business that has been operating for less than a year.

Björnsdóttir said it was contradictory to encourage investment, year-round operations and economic growth outside the capital while increasing the tax burden on businesses expected to deliver that development. Predictability in the operating environment was particularly important when considering long-term investments such as a hotel, she said.

She said she was concerned about the proposed changes, especially as several tax and fee changes appeared to be affecting tourism businesses and their customers at the same time. The company had recently made a substantial investment outside the capital region and was still developing and improving its operations at a large visitor attraction with about 70 employees.

As winter approaches, demand is lower and the company needs to adjust its operations and reduce its workforce, she said.