What is the VAT on electricity in Spain?

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.