Spanish government to cut electricity VAT from 21% to 10%

IVA reduction in electricity tax

**Edited to update – 24th June 2021**

The Cabinet have approved the temporary IVA tax reduction from 21% to 10%

The Spanish national government have approved a reduction in the IVA on electricity bills from 21% to 10%, it has been released today.

Sources explain that the Government continue to work on quick and effective measures to tackle the high prices of electricityand seek to address the impact of these prices in the wholesale electricity market, in order to “urgently address and alleviate the situation for families…” said the Minister of Finance, María Jesús Montero, at a press conference earlier today.

The royal decree law, which has also established the suspension of the tax on electricity generation during the third quarter of this year, will enter into force the day after its publication in the Boletín Oficial del Estado (BOE) scheduled for tomorrow, Friday 25th June 2021.

The tax reduction comes after the latest update of electricity tariffs How will the new 2021 electricity tariffs affect you with potencia greater than 15 kW? caused anger and confusion among consumers nationwide.

The change was approved at Thursday 24th’s meeting of the cabinet, convened in order to confirm that face masks will no longer be compulsory outdoors from June 26th.

The new tax rate will apply until the end of the year for all consumers with a contracted power (potencia) of up to 10 kW, as long as the average monthly price of the wholesale electricity market remains above €45 per megawatt/hour.

Montero stressed that contracted power (potencia) up to 10kW covers “practically all domestic households in Spain“, since the average power is 4.1 kW, and 72.5% of business contracts also fall into this category.

A 10% VAT will also be applied to all severely vulnerable consumers – some 612,000 households receiving the social bonus – until the end of the year regardless of their contracted power and market price.

This decision, active from June 26, will make domestic consumers receive up to three electric bills during this month of June. A first invoice on the first days of of the month with the introduction of the new tariffs, a second with IVA at 21% until June 26 and another from that day with IVA already reduced to 10%.

The application of the new IVA will not apply to self-consumption installations, nor to other payments that are made in the electricity sector, such as the payment of the distributors to REE.

In addition, the 7% VAT rate on electricity production will be suspended in the third quarter of this year.

According to the EU, the tax on electricity is lower in many other countries including Portugal (which cut it from 23% to 6%), Greece (6%), France (5.5%), Italy (10%) and United Kingdom (5%).

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