A significant portion of your electricity bill consists of taxes. In Spain, the main taxes are VAT and the special electricity tax. Additionally, there is a third tax on electricity production that, although not directly shown on your bill, affects the overall cost of electricity. Let’s explore each of these taxes in detail.
VAT on Electricity
VAT (Value Added Tax) is a consumption tax. In 2024, VAT on electricity has been reduced to 10% for contracted power equal to or less than 10 kW, as long as the average wholesale market price for the previous month is above €45/MWh. However, since March 2024, the VAT applied to electricity bills has been 21% due to the average daily market price being below this threshold. In June, when the price exceeded this threshold, VAT dropped back to 10%.
Royal Decree-Law 8/2023 ended the temporary VAT reduction to 5%, setting it at 10% for 2024, contingent on the mentioned power and price conditions. In February 2024, with the average wholesale market price below the threshold, bills with a billing period ending in March 2024 carry a 21% VAT. Earlier bills are not affected by this change.
It is important to note that, whether reduced (10%) or general (21%), VAT may change again in 2024, depending on electricity prices.
Electricity retailers do not profit from these taxes; they act as collectors for the government.
Special Electricity Tax (IEE)
The IEE, also known as the electricity tax, levies a 5.113% charge on the cost of electricity production, based on the consumption and power terms. To calculate it, the sums of the electricity consumption and contracted power terms are used, and it is applied before VAT. This tax affects all households, businesses, and spaces with an electricity supply point, regardless of electricity usage.
This tax was introduced in 1992 to support the coal mining industry. In September 2021, it was reduced to 0.5% by Royal Decree-Law 17/2021. Under Royal Decree-Law 8/2023, the rate is 2.5% from January 1 to March 31, 2024, increasing to 3.8% until June 30, 2024, and returning to the normal rate of 5.113% from July 2024.
Electricity Production Tax (IVPEE)
The IVPEE is a 7% tax on electricity production, established in December 2012 by Law 15/2012. Its main purpose is to contribute to sustainability and minimize the environmental impact of electricity production.
This tax applies to any installation, regardless of the energy source, size, or exploitation outcome, and is directed at producers. It is calculated excluding VAT, based on the gross revenue from the production and integration of electricity into the grid.
In June 2021, the government suspended this tax from July 1, 2021. Under Royal Decree-Law 8/2023, a 3.5% rate applies from January 1 to March 31, 2024, increasing to 5.25% until June 30, and returning to the normal rate of 7% from July 2024.
These taxes make up a significant portion of your electricity bill and can vary based on government policies and market conditions. Staying informed about these changes is crucial to better understanding the cost of your electricity consumption.
Source: Endesa.com