Publication of Royal Decree-Law 20/2022, of 27 December, and its implications for VAT. Reduction of VAT rates
The measures of this Royal Decree-Law, which focuses on vulnerable groups, are aimed at containing prices and supporting affected citizens and companies.
This aid, and the consequent reduction in production costs, will take effect from 1 January 2023.
Reduction in VAT rates on certain foodstuffs and materials related to COVID prevention
The VAT rate temporarily applicable to certain supplies, imports and intra-Community acquisitions of foodstuffs, with effect from 1 January 2023 and valid until 30 June, will be 5 per cent on the following products:
- Olive and seed oils
- Pasta
The rate of the equivalence surcharge applicable to these operations shall be 0.625 per cent.
However, the applicable tax rate shall be 10 per cent as from 1 May 2023, in the event that the year-on-year rate of underlying inflation for the month of March, published in April, is less than 5.5 per cent. In this case, the equivalence surcharge rate applicable to these transactions will be 1.4%.
In addition, while prices continue to rise, the government considers it appropriate to reduce the rate of Value Added Tax on basic food products, that is the following, from 4 to 0 per cent:
- Plain bread, as well as frozen plain bread dough and frozen plain bread intended exclusively for the production of plain bread.
- Bread-making flour.
- Milk produced from any species of animal: natural, certified, pasteurised, concentrated, skimmed, sterilised, UHT, evaporated and powdered.
- Cheese and eggs.
- Fruits, vegetables, legumes, tubers and cereals, which have the status of natural products in accordance with the Food Code and its provisions.
The equivalence surcharge rate applicable to these operations shall be 0 per cent.
However, the applicable tax rate will be 4 per cent as of 1 May 2023, in the event that the year-on-year rate of underlying inflation for the month of March, published in April, is less than 5.5 per cent. In this case, the equivalence surcharge rate applicable to these transactions will be 0.5%.
On the other hand, and in relation to COVID-19 and VAT, given that the obligatory use of masks as a preventive measure against COVID-19 in certain public areas is maintained, the application of the 4% VAT rate to deliveries, imports and intra-Community acquisitions of disposable surgical masks referred to in the Agreement of the Interministerial Commission on Drug Prices of 12 November 2020 is extended until 30 June 2023.
Similarly, it has been considered appropriate to extend, during the first half of 2023, the application of the 0 percent VAT rate to the products necessary to combat the effects of SARS-CoV-2, since vaccination campaigns and the generalisation of diagnostic tests are a fundamental pillar in the prevention and protection of citizens.
Reduced VAT rates on energy
The application of the 5 percent VAT rate to deliveries, imports and intra-Community acquisitions of natural gas, briquettes and pallets from biomass and wood for firewood is extended.
Article 1 of the aforementioned Royal Decree-Law introduces the rate of the equivalence surcharge applicable to the supply of briquettes and pallets, which will be 0.625 per cent.
The application of the applicable rate of Value Added Tax to certain deliveries, imports and intra-Community acquisitions of electrical energy made in favour of:
- Holders of electricity supply contracts, whose contracted power (fixed power term) is less than or equal to 10 kW, regardless of the voltage level of the supply and the type of contract, when the arithmetic average price of the daily market corresponding to the last calendar month prior to the last day of the billing period exceeded €45/MWh.
- Holders of electricity supply contracts who are recipients of the social bono of electricity and are recognised as severely vulnerable or severely at risk of social exclusion, in accordance with the provisions of Royal Decree 897/2017, of 6 October.
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