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How much is paid in taxes on electricity in Spain?
If you check your electricity bill, you will see that only part of what is billed is for your consumption and power. Approximately one third of your bill is for taxes, with two types: VAT and special tax on electricity. There is also a third tax, the tax on electricity production, which is not included on your bill but can affect the cost of electricity. Let's look at each of them individually.
VAT on electricity
VAT is Value Added Tax. This is a consumption tax that exists in many countries, including Spain. It forms the basis of the Spanish indirect taxation system. It was first introduced in 1986 and was reformed in 1992 to adapt to the European single market.
In Spain, VAT is divided into three types:
- General VAT: it is levied at 21%. Most products and services fall into this category.
- Reduced VAT: in this case the rate from July 1, 2022 is 5%.
- Super-reduced VAT: levied at 4%.
Until June 2021, VAT on electricity supply services was the general one, that is, 21%.
This percentage ranked Spain among the European Union (EU) countries with the highest VAT on electricity consumption, only behind Hungary (27%), Denmark (25%), Croatia (25%) and Sweden (25%).
At the other end of the list were Greece (6%), the United Kingdom (5% for domestic consumers), Malta (5%), Italy (10%), Ireland (13.5%) and Luxembourg (8%). Portugal applies 6% VAT for the first 100 kW/h of consumption and thereafter raises it to 23%.
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).
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VAT rates in Europe with regard to electricity consumption
Highest VAT:
- Sweden, Denmark, Hungary and Croatia: >25%
Variable VAT depending on consumption: France and Portugal
Lowest VAT:
- Italy and Ireland: <15%
- Spain, United Kingdom and Greece: <10%
*VAT in Spain exceptionally reduced since 1st of July 2022.
Reduction of VAT on electricity in 2021
However, in June 2022 the Spanish Government made a temporary modification to the category which includes electricity, which let to it being included in the category of products and services with reduced VAT, so since then, VAT is only 5% for both private and company consumers with contracted powers up to 10 kW. Royal Decree-Law 11/2022, of June 25, also states that reduced VAT will be maintained providing the wholesale market price remains above €45 per MWh.
It should be remembered that, since the publication of the previous Royal Decree-Law 12/2021, of June 24, 2021, which reduced VAT from 21% to 10%, the market price has remained above €45 per MWh.
Royal Decree-Law 11/2022 also states that severely vulnerable consumers and those at risk of exclusion, in other words, those that meet the requirements to be granted access to the Social Bonus, will remain with reduced VAT even if the wholesale market price falls below €45.
Special tax on electricity
The special tax on electricity (IEE), also called the electricity tax, is a tax levied on the cost of manufacturing electricity at a rate of 5.113% of the amount of the charges for consumption and power. It is calculated by adding the amounts of the charges for electricity and contracted power. Remember that this tax is calculated before applying 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.
Since June 2021 this tax has been reduced to 0.5%, through Royal Decree-Law 12/2021. The Royal Decree-Law 06/2022 has extended this reduction until 30 June 2022.
Tax on electricity production
The Tax on Electricity Production (IVPEE) consists of a 7% tax levied on electricity production 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.
As happened with VAT, in June 2021 the Government agreed to suspend this tax during the third quarter of last year, through Royal Decree-Law 12/2021. This measure has been extended until 30 June 2022, through Royal Decree-Law 06/2022.
Total taxes on the electricity bill
As mentioned above, taxes depend on consumption and power. We could say they represent approximately one third of the bill. However, the measures to reduce the VAT and IEE rates have lowered the percentage of taxes to almost 10% of the bill.
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