Brussels Demands Spain Raise Tourism VAT; Businesses Protest

Brussels is demanding Spain raise its value-added tax (VAT) on tourism services from 10% to 21%, a move that Spanish business leaders say would cripple one of the nation's most vital economic sectors. The Spanish Confederation of Employers' Organizations (CEOE) has voiced strong opposition, arguing that such a drastic tax increase would undermine the competitiveness of the tourism industry and could drive visitors to more affordable destinations in the Mediterranean.

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The pressure from the European Commission for Spain to raise the VAT rate on hotel and catering services from 10 to 21 percent is met with strong opposition from Spanish entrepreneurs.

The CEOE's stance was highlighted alongside the release of a report by the Institute of Economic Studies (IEE) titled "Fiscal Competitiveness 2025: Reflections on Taxation in Tourism." The report emphasizes that tourism is a cornerstone of the Spanish economy, contributing 12.6% to the country's GDP, providing employment for nearly 2.8 million people, and serving as the nation's largest service exporter.

According to the IEE report, a jump in VAT from 10% to 21% would significantly increase operating costs for businesses in the tourism sector. These businesses often operate on thin profit margins and are highly sensitive to price fluctuations. The report warns that companies would likely pass these higher costs onto consumers, reduce staffing, or even close down parts of their operations.

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Such a radical change would weaken the competitiveness of one of the most important sectors of the economy and could lead to an outflow of tourists to other countries in the Mediterranean basin.

Fernando Pinto Hernández, an IEE expert, noted that VAT on tourism effectively acts as a tax on exports. He compared a VAT hike to imposing a tariff on one of Spain's key export products. The report cites Portugal's experience, where a VAT increase on gastronomy services in 2012 led to business closures and job losses, with the higher rate eventually being reversed in 2016.

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In the case of tourism, VAT effectively burdens the export of services.

Beyond tourism, the report also critiques Spain's overall tax system competitiveness. Spain ranked 34th out of 38 OECD countries in the 2025 International Tax Competitiveness Index, well below the EU average. The IEE suggests that instead of increasing tax burdens on tourism, the Spanish government should focus on improving the country's overall tax competitiveness to foster investment and economic growth.

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Raising its rate would be comparable to imposing a tariff on one of Spain's most important export products.