End of inflation spike means 2022 temporary zero-rating to be phased out
The Spanish temporary zero-rating of bread, flour, certain types of milk, cheeses, eggs, and fruits, vegetables, legumes, tubers, and cereals is to be phased out as inflation returns from a 10.8% 2022 peak to the current 3.8%.
The zero rate will return to 4% as follows:
- 1 October 2024: rise to 2%; and
- 1 January 2025 (likely): rise to 4%
Olive oil had been reduced from 10% to 5% will now go to 0%. It will move to 5% on 1 January 2025.
The short-term cut was first introduced in December 2022.
VAT on natural gas rises to 10% until March 2024
The Spanish government’s cut to the Value Added Tax rate on domestic natural gas from 21% to 5% since October 2022 has ended. The rate will now move to 10% between 1 January and 31 March 2024.
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Domestic electricity rises to 10% for 2024
The subsidised 5% VAT rate on electricity which applied between June 2021 and Dec 2023, rises to 10% until 31 December 2024. This applies to only certain customers:
- Consumers on low-incomes and welfare support
- Supplies to households and small businesses based on a price ceiling of €45 per MWh in the marketplace.
The measure was first introduced in June until 31 December 2021. It was then first extended to April 2022.
Other European electricity VAT cuts have now been widely copied.
The government has also suspended the electricity industry 7% tax, IVPEE, levied on producers for July, August and September. IVPEE tends to be passed on directly to the end consumers
European Commission derogation from reduced VAT rate rules granted
In setting the 10% rate, Spain was varying from the rules on reduced VAT rates contained within the EU VAT Directive. It sought initial permission for the second half of 2021. It has now applied for permission to extend the measure for the first four months of 2022.
Article 98 of the VAT Directive establishes that Member States may apply either one or two reduced rates. Reduced rates can only be applicable to the supply of goods and services in the categories described in the Annex III of the Directive. Nevertheless, Article 102 of the VAT Directive establishes that, after consultation of the VAT Committee, each Member State may apply a reduced rate to the supply of natural gas, electricity, or district heating.
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