Ibiza and Formentera Hoteliers Warn Against Proposed VAT Increase
The Ibiza and Formentera Hotel Business Federation (FEHIF) has expressed its concern over the European Commission’s recommendation that Spain increase the VAT rate applied to the hotel and restaurant sectors. The federation believes that such a measure would have a direct impact on the competitiveness of island destinations such as Ibiza and Formentera, where tourism is the main pillar of the economy and where hotel investment is currently reaching record levels nationwide.
Brussels proposes increasing VAT from 10% to 21%
The recommendation referred to by FEHIF appears in the European Semester Report published on 3 June. In the report, the European Commission calls on Spain to limit the use of reduced VAT rates and specifically highlights hotels and restaurants, currently taxed at 10%, due to their “high budgetary cost” and “limited redistributive effect.” Applying the standard VAT rate would increase taxation on these sectors to 21%.
According to the Commission’s estimates, maintaining the reduced VAT rate for these sectors results in approximately €7 billion in foregone tax revenue each year. However, the recommendation is not legally binding.
An increase that businesses would largely have to absorb
FEHIF notes that the Balearic tourism sector is already facing significant increases in energy, labour and operating costs, within an international environment marked by uncertainty and growing competition among Mediterranean destinations.
In this context, the federation argues that any VAT increase could not be fully passed on to consumers, as a significant portion of the additional tax burden would likely need to be absorbed by businesses themselves. FEHIF warns that this could reduce profit margins and consequently limit companies’ capacity to invest and improve their competitiveness.
The organisation also highlights that the hotel sector in Ibiza and Formentera has spent years investing in modernisation, quality improvements and the transition towards a more sustainable, higher-value tourism model. This transformation is also reflected in the repositioning of the island’s luxury hospitality sector.
“Competitiveness does not depend solely on demand”
“Tourism competitiveness does not depend solely on demand. It also depends on businesses being able to continue investing, improving their establishments and generating stable employment and economic activity across the islands,” the federation stated.
FEHIF believes that any discussion regarding tourism taxation must take into account the specific realities of island territories such as Ibiza and Formentera, where a large part of the economy depends directly or indirectly on tourism and where hotels account for a significant share of total tourist spending.
Preserving international competitiveness
At a time when destinations are striving to consolidate stable, sustainable and competitive tourism seasons, FEHIF considers it essential to preserve Ibiza and Formentera’s ability to continue attracting visitors and maintaining their international positioning.
For this reason, the federation argues that tourism-related policies should focus on strengthening competitiveness, quality and sustainability, while avoiding measures that could further increase the cost of tourism activity.
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