Move to Spain

As the New Year begins, expats and residents in Spain are bracing for significant changes in their electricity bills, driven by a combination of tax increases and alterations in the social bonus scheme.

VAT Increase to 21%

Starting January 1, 2025, the Value Added Tax (VAT) on electricity in Spain has reverted to 21%, marking the end of a three-year period of reduced rates. This change follows a series of reductions aimed at alleviating the cost-of-living crisis, with VAT initially lowered to 10% in June 2021 and further reduced to 5% in July 2022.

Impact on Households

For households, this VAT increase translates to an average monthly rise of €5.42, adding approximately €65 annually to their electricity bills. A family with a monthly consumption of 250 kWh can expect to pay around €72 more per year, according to estimates from the Selectra comparison site[2].

Impact on Businesses

Small and medium-sized businesses will also feel the pinch, with expected increases of €114 per month, totaling €1,372 annually. This substantial rise is likely to affect the operational costs and profitability of these enterprises[1].

Changes in Social Bonus Discounts

In addition to the VAT hike, changes in the social bonus scheme will further impact vulnerable households. While these households will still receive a rebate, the discount will be reduced. Until July 2025, they will receive a 50% rebate, which will then be reduced to 42% and eventually stabilize at 35% in 2026. This is a decrease from the 25% savings they enjoyed before the crisis[5].

Other Cost Increases

The rise in electricity costs is just one part of a broader landscape of increasing expenses in Spain. Here are some other key changes expats should be aware of:

Food and Essentials

VAT on basic foodstuffs such as bread, milk, eggs, fruit, vegetables, and legumes will increase from 2% to 4% in January 2025. However, olive oil will remain at a reduced rate of 4%, classified as a basic necessity[2].

Transport and Fuel

Public transport subsidies will continue until June 2025, with free train season tickets for frequent travelers on local and medium-distance trains. However, tolls on motorways will rise by almost 4% from January 1, 2025. Fuel prices are also expected to increase, with diesel taxes being aligned with those of petrol, resulting in a 10-cent per liter increase[2][5].

Telecommunications and Other Services

Telecommunications companies such as Movistar and Vodafone have announced price increases, with most rises being less than €6 per month. Additionally, postal services will see an 8.5% increase in the cost of posting a standard domestic letter[5].

Housing and Real Estate

House prices are expected to rise significantly in 2025, with forecasts indicating a more than 10% increase in both sales and rentals. This is due to high demand and a lack of supply, particularly in city apartments[5].

Economic Outlook

Despite these price increases, the overall economic outlook for Spain in 2025 is relatively positive. The Spanish economy is expected to grow, albeit at a slightly slower rate than in 2024. Sectors such as agriculture, manufacturing, and tourism are anticipated to continue growing, while sectors like information and communication technologies, professional services, and the pharmaceutical industry are expected to gain strength[4].

However, inflation remains a concern, with the Bank of Spain estimating that it will moderate to 2.1% by the end of 2025 and drop to 1.7% by the end of 2026. The recent surge in fuel prices has contributed to higher-than-expected inflation rates, but overall, the economic indicators suggest a stable, though cautious, outlook for the year ahead[5].

In summary, expats in Spain need to be prepared for higher electricity bills and a range of other cost increases in 2025. While these changes may present challenges, the broader economic context suggests that Spain is navigating these pressures with a mix of resilience and growth.