What will be the electricity VAT rate in Spain for 2025?

How much taxes will be paid on electricity in Spain in 2025?

A large part of what you pay on your electricity bill is tax, namely VAT and the special tax on electricity.

There is also a third tax on electricity production which, although it does not end up on your bill, ends up impacting the cost of electricity. Let's look at each of them individually.

VAT on electricity

VAT is Value Added Tax. It is a tax on consumption that exists in many countries, including Spain. It forms the basis of the Spanish indirect taxation system. It was introduced in 1986 and reformed in 1992 to bring it into line with the European single market.

The Different VAT Rates

In Spain, VAT is divided into three types*:

• General VAT: this is a 21% tax. Most products and services fall into this category.
• Reduced VAT: 10%.
• Super-reduced VAT: 4%.

*0% and 5% are also applied to certain products and/or services.

Before June 2021, electricity VAT was 21%. In 2025, the government will reinstate this rate after temporarily reducing it to alleviate the impact of high electricity prices.

This places Spain among EU countries with the highest VAT rates on electricity consumption, alongside Hungary (27%), Croatia (25%), Denmark (25%), and Sweden (25%).

On the other hand, Greece applies 6%, Malta 5%, Italy 10%, Ireland 13.5%, and Luxembourg 8%. In Portugal, the VAT rate is 6% for the first 100 kWh of consumption and increases to 23% thereafter.

In the case of France, there are two types of VAT: The reduced rate of 5.5% is applied to the fixed bill items (down payment and subscription fee), while the general 20% is applied to the variable item (consumption).

VAT increases on electricity until 2025

Historically, VAT on electricity was 21%, but in June 2021 the government lowered it to 10%, and later, starting 1 July 2022, lowered it again to 5%. In 2024, there was an increase, and starting on 1 January, a 10% rate was applied. An expiry date was also announced: on 1 January, 2025, it will go back to the general rate of 21%.

However, these reductions had 2 conditions:

• They were only for contracted capacities of up to 10 kW, whether individuals or companies. The vast majority of Spanish homes have a contracted power of less than 10 kW.
• The price of electricity in the wholesale market (where retailers buy energy to sell to their customers) of the calendar month prior to the last billing day must be above €45/MWh.

Since the implementation of these measures, the average monthly price in the wholesale market has consistently remained above €45/MWh. In February 2024, the average monthly price dropped below €45/MWh, triggering a VAT increase to 21% for March billing. The same happened in April, May, and June.

However, in June 2024, the average electricity price on the wholesale market rose again above €45/MWh. Therefore, the VAT rate returned to 10% for bills where the last day of the billing period fell in July 2024. This alternation continued throughout 2024.

From 1 January 2025, all bills will include a VAT rate of 21%.

Special tax on electricity in 2025

The special tax on electricity (IEE), also known as electricity tax, is a tax on the cost of electricity production, charged at 5.113% of the amount of the consumption and power capacity. To calculate it, we must add the amounts of the electricity consumption and of the power capacity contracted. It should be noted that this tax is calculated before the application of VAT. Any homes, business premises and spaces that have contracted an electricity supply point pay it, regardless of whether they consume electricity or not.

This tax was approved in 1992, through Law 38/1992. Originally it was called specific cost allocated to coal mining, because at first it was created as a measure to support mining.

In September 2021, this tax was reduced to 0.5% by Royal Decree-Law 17/2021. This reduction was extended until, with Royal Decree-Law 8/2023, the rate of 2.5% was established that will apply from 1 January to 31 March 2024. Subsequently, it will undergo another change to 3.8% until 30 June, 2024. Finally, starting in July 2024, the normal rate of 5.113% was reinstated.

Special tax on electricity generation in 2025

The Tax on Electricity Production (IVPEE) consists of a 7% tax levied on the production of electricity and was created in December 2012 through Law 15/2012. The main purpose is to contribute to sustainability with the proceeds and minimise the impact that electricity production has on the environment.

It applies to any building, regardless of the energy source, the dimensions or profit from operations. This tax is aimed at the producer.

It is calculated without including IVA, in other words, based on the gross inflows of income that are generated during the production of electricity and its inclusion in the electricity system, received or to be received by the taxpayer.

No other country in our vicinity has such a tax on electricity supply.

In June 2021 the government agreed to suspend this tax from 1 July 2021. Royal Decree-Law 8/2023 set a 3.5% rate from 1 January to 31 March 2024. From 1 April to 30 June, the rate increased to 5.25%. Starting in July 2024, the standard 7% rate was reinstated.