The permafrost region stores ∼1300 PgC, and its response to warming is a significant uncertainty in future climate projections. We assess how the treatment of vegetation dynamics and CO<sub>2</sub> fertilisation influences the permafrost carbon feedback (PCF) by performing experiments with the land-surface model ICON-Land. A vertically explicit implementation of the YASSO soil-carbon scheme resolves depth-dependent carbon pools, as well as temperature and moisture controls on decomposition, while a newly introduced cold-adapted shrub plant-functional type (PFT) enables a more realistic description of Arctic vegetation.</p> <p>Using CMIP5-derived climate forcing, we performed nine offline experiments from the year 2020 to 2299 CE under RCP 2.6, 4.5 and 8.5. The experiments isolate the effects of (a) climate warming with fixed 2019 CO<sub>2</sub> and vegetation, (b) rising CO<sub>2</sub> with constant vegetation cover, and (c) the effects of both rising CO<sub>2</sub> and a fully dynamic vegetation. All simulations start from a data-constrained pre-industrial permafrost soil carbon inventory.</p> <p>When vegetation is held static, strong warming (RCP 8.5) alone drives a loss of ∼650 PgC by 2300 CE, turning the permafrost region from a modest sink of carbon into a strong source. Allowing CO<sub>2</sub> fertilisation but no vegetation change reduces the loss to ∼250 PgC because enhanced NPP increases litter inputs. In the fully dynamic experiments, shrubification and northward tree expansion dramatically increase aboveground biomass (of up to 199 PgC) and litterfall, limiting soil-C loss to only ~70 PgC. Consequently, total permafrost-region carbon declines by < 100 PgC under RCP 8.5 and even shows a net gain under the low-emission pathways (RCPs 2.6 and 4.5).</p> <p>These results demonstrate that the sign and magnitude of the PCF are highly sensitive to the representation of vegetation dynamics. Dynamic competition among PFTs, CO<sub>2</sub>-driven NPP enhancement, and the resulting shifts in carbon accumulation together can offset most of the carbon released by thawing soils. Incorporating realistic Arctic vegetation, especially cold-tolerant shrubs, is therefore decisive for reliable projections of the permafrost carbon feedback and its impact on the global carbon cycle.