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What is the VAT on electricity in Spain?

What is the tax rate on electricity bills in Spain? We explain what VAT, IVPEE and IEE are.

How much tax do you pay for electricity in Spain?

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.

 

What is the VAT on electricity?

In 2024, VAT on electricity will stay at the reduce price of 10% for contracted power equal to or less than 10 kW, provided that the average wholesale market price in the calendar month prior to the last day of the billing period is above €45/MWh.

 

Why is VAT on electricity going up?

Royal Decree-Law 8/2023 put an end to the temporary reduction of VAT on electricity to 5%, and for the year 2024, it set VAT at 10% provided that the aforementioned conditions of power and price of electricity are met. Given that in February 2024 the average price of the wholesale market fell below the threshold established by the government, the VAT on invoices whose billing period ends in March 2024 stands at 21%.

 

When does the increase in VAT on electricity start to be applied?

Invoices whose billing period ends in March 2024 will include VAT of 21%. Invoices whose billing period is earlier will not be affected by this change in VAT to 21%.

Whether reduced (10%) or general (21%), the VAT rate may change again in the course of 2024, depending on whether the price of electricity in the wholesale market remains above or below the threshold set by the government.

It should be remembered that the retailers do not make any profit on this; they simply collect taxes implemented by government administrations.

 

 

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.

Until June 2021, VAT on electricity supply services was the general one, that is, 21%.

This percentage placed Spain among the European Union (EU) countries with the highest VAT on electricity consumption, only below 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%), 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).

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.

VAT hikes on electricity in 2024

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 these measures, the average monthly price on the wholesale market had remained above €45/MWh. In February 2024 it dropped below this figure, and that is why VAT returns to the general rate of 21%. Therefore, invoices issued whose billing period ends in March will include VAT of 21%.

Even so, the VAT rate to be applied, whether reduced (10%) or general (21%), may change again in the course of 2024, depending on whether the price of electricity remains above or below the threshold set by the government.

 

Special tax on electricity

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 July 2024, it will return to the normal rate of 5.113%.

 

The Tax on Electricity Production

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 established that between 1 January and 31 March 2024 a rate of 3.5% will be applied, then 5.25% until 30 June and, from July 2024, the normal rate of 7% will return.

Total taxes on the electricity bill

As mentioned above, taxes depend on consumption and power. Approximately, we can say that they account for a third of the bill.

Comparison of Electricity and Gas Tariffs

You don't need to adapt to Endesa's tariffs because they adapt to you. If you go to our catalogue you can compare the different tariffs for yourself. Or if you prefer, you can answer a few questions and we will take care of comparing all the different electricity and gas tariffs and then make a customised recommendation.

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