Compost manufacturers must pay tax under the VAT simplified regime

The activity of producing organic fertilizers through the transformation of livestock waste has received a decisive tax definition. The Directorate General of Taxes (DGT) has clarified the nature of this process and its impact on the tax regime applicable to producers.

What the DGT has ruled

The inquiry analyzes whether the process of mixing manure with other materials to generate compost is considered mere preservation of agricultural products or a transformation activity. The Administration's criterion is that this process constitutes a transformation of the raw material.

As it is not an activity of mere preservation, the DGT establishes that:

• The activity is excluded from the special regime for agriculture, livestock, and fishing.
• The taxpayer must pay tax under the VAT simplified regime.
• For Personal Income Tax (IRPF), the activity must be declared using the objective estimation method.
• It is considered an activity independent of the original agricultural or livestock operation.

What this means for you

If you are an individual managing an agricultural or livestock operation and decide to start a business line for the manufacture of fertilizers or compost, you will not be able to maintain the same tax structure as your main activity. The regulations of Law 37/1992 and Order HAC/1425/2025 mark a clear boundary between primary production and waste transformation.

This implies that accounting, VAT settlement, and the declaration of profits in IRPF must be segregated from the livestock or agricultural activity, applying the models and methods corresponding to industrial or transformation activities.

What should be done

Upon starting this type of project, it is necessary to evaluate the cost structure and the administrative management involved in the separation of activities. The transition from a special agricultural regime to an objective estimation regime requires a different accounting organization to comply with the obligations of current regulations. It is recommended to assess each particular case to ensure that the new activity meets all the tax segregation requirements demanded by the Administration.