Agricultural VAT Compensation Excluded from the 2025 Objective Assessment Regime: An Insufficient Reform

The New Exclusion of Agricultural VAT Compensation from the 2025 Objective Assessment Regime

Order HAC/1347/2024 of 28 November, published in the Official State Gazette (BOE) on 30 November, introduced a significant, though insufficient, change for rural businesses: compensation under the special VAT scheme for agriculture, livestock and fisheries (REAGP) is no longer counted as income when calculating the €250,000 threshold for inclusion in the objective assessment regime (the “modules” system) for personal income tax in 2025.

On paper, this measure may seem like a relief for many farmers and livestock breeders. Viewed in context, however, it is more of a technical adjustment that does not address the underlying structural problem: the rigidity of the modules system, the lack of fairness in its application and the growing vulnerability of family farms in rural areas.

A partial change with limited effect

Article 3.1(b) of the Order provides that neither REAGP compensation, current or capital grants, VAT nor the equivalent surcharge are to be counted as income. This reverses the approach taken in previous tax years, but the change comes late and does not go far enough.

Excluding REAGP compensation is logical and even necessary, since it functions as an implicit refund of input VAT rather than income actually generated by the business. Counting it as income artificially distorted the thresholds and forced many small farms out of the modules system.

A burden that remains disproportionate

Even so, the system’s control framework continues to penalise small farmers and livestock breeders with modest operations, particularly where family entities, ancillary activities or sharecropping arrangements are involved.

Including the income from a spouse’s, ascendants’ and descendants’ activities, and even from related entities subject to the income attribution regime, creates an artificial aggregation that distorts the actual “volume of activity” of the farm owner. Far from supporting the continuity of family farms, this punitive approach forces many productive units into the direct assessment regime, with unsustainable tax and administrative costs.

Growing complexity and legal uncertainty

The level of detail and the number of exceptions in Order HAC/1347/2024 reflect growing regulatory complexity, contrary to the modules system’s simplifying purpose. How can the system be called “objective assessment” when a farmer must review accounting records, aggregated family income, special regimes, REAGP exclusions and relationships between IAE business classifications just to determine whether they qualify?

This regulatory trend only increases legal uncertainty for those with the least technical capacity and access to professional advice to comply properly.

A missed opportunity for reform

Instead of moving towards a fairer, more progressive and realistic system, the Government has introduced small patches that mask the gap between taxation and the economic reality of Spanish agriculture. A thorough reform was needed:

• A more flexible modules system adapted to the sector’s seasonality and volatility.

• Exclusion thresholds based on actual profits rather than aggregated figures.

• Simplified rules for ancillary and family activities.

• Above all, greater tax protection for family farms, which help keep rural communities alive.

Conclusion

The change introduced by Order HAC/1347/2024 is welcome, but insufficient. If the aim was to protect small rural producers, the Administration has once again misdiagnosed the problem and failed to provide an adequate solution.

It is time to stop patching the system and rethink it in light of tax fairness, agricultural sustainability and territorial cohesion. Whenever a farmer is forced to leave the modules system or close a farm because of tax obstacles, we all lose—as a country, a society and an economy.