How much is VAT on electricity in Spain?
The VAT on electricity in Spain is generally 21%. However, a reduction to a new VAT rate of 10% was recently approved for the majority of consumers.
This measure is temporary (until December 31, 2021) and you can benefit from this reduction only if you meet the criteria specified in Royal Decree-Law 12/2021 of 24 June.
So that you do not have to read the Royal Decree, we will tell you about these criteria.
To whom does the VAT rate of 10% on electricity apply?
The reduction of VAT on electricity to 10% will affect the vast majority of consumers, but they will have to comply with these conditions:
1. Contracted power equal to or less than 10 kW
The vast majority of Spanish households and small businesses have a contracted power of between 3 and 6 kW. In all these cases a reduced VAT of 10% for electricity will be applied for contracted powers equal to or less than 10kW.
2. When the wholesale price of electricity exceeds €45 per MWh
The purpose of lowering the VAT on electricity is to offset occasional increases in electricity due to the costs of producing and marketing electricity. These costs are fixed in daily auctions.
When the sale price is high (above €45 per MWh) the VAT rate of 10% will be applied. If the price of electricity in the wholesale market falls below that value, the VAT rate for electricity would again be 21%, regardless of the contracted power you have. At present, it seems unlikely that the price will fall below €45 in the coming months.
Remember, we are talking about a temporary measure until 31 December 2021. From that date, normality will resume, in other words, a VAT rate of 21% for all cases.
3. Clients with a Social Bonus
All users of the regulated market who have a valid Social Bonus and a recognised status of vulnerability will benefit from the reduction of VAT on electricity.
For these customers, and for the duration of the measure, the VAT on electricity will always be maintained at 10% instead of 21%, regardless of the price in the wholesale market auctions.
Why is the VAT on electricity going down?
The VAT on electricity has been reduced to 10% to try and offset the rise in electricity prices caused by an increase in the cost of energy production. In the last year, it had increased at specific times because the price of electricity depends on varying factors.
How will the reduction in VAT on electricity affect you?
From now until 31 December of this year, the vast majority of customers will benefit from a lower rate of VAT on electricity in Spain.
As the VAT on electricity is applied after you have totalled all the costs of your bill, this measure could mean a saving by applying 10% instead of 21% in the vast majority of cases.
Are other electricity taxes going down?
Although the reduction of the VAT on electricity is the main measure of the new decree and is the only one that is immediately applicable (from 26 June 26 2021), other decreases in electricity taxes are also included in the new regulations.
On an exceptional basis, the aim is to eliminate the electricity tax during the last quarter of the year. It is a tax of around 5% and you can find it on your electricity bill in the other items section.