5 Main Tax Regimes of the Canary Islands
The Canary Islands are a Spanish archipelago located in the Atlantic Ocean next to the north-western coast of Africa. The Islands have always had differentiated tax benefits within Spain and the European Union. Its unique economic and tax system provides excellent conditions to foster investment and trade. This system is included on a permanent basis within the EU Legal Framework through Art 299.2 of the Treaty on European Union, offering exceptional advantages to both investors and companies. The most relevant incentives within this particular tax system are listed below.
1. Canary Islands General Indirect Tax (IGIC)
Tenerife has no VAT; instead it has IGIC (Impuesto General Indirecto Canario), which is the regional indirect tax on consumption. Its general rate is set at 7%
2. RIC - Canary Island Investment Reserve
The Canary Island Investment Reserve (RIC) is a corporate income tax benefit aimed at stimulating self-financed investment which have important effects over the taxable base.
The RIC enables a company to reduce its tax base (Corporation Tax) of its undistributed Profits. What this means is that Companies will have up to 90% allowance on undistributed profit that can go to the Canary Islands Special Investment Reserve (RIC) within a 3 year period for the following purposes:
● Acquiring new assets.
● Research and Development expenses.
● Job creation, insofar it is directly related to initial investments.
● Subscribing shares or stakes in the capital of companies operating in/from the Canary
● Subscribing shares or stake on the capital or the equity issued by venture capital companies or funds, as well as investment funds.
● Subscribing securities or book entry securities of the Canaries Public Debt limit of 50% of the RIC allocated each year).
This is exclusively limited to the benefits obtained from economic activities, that have not been distributed, being excluded, among others, benefits obtained from the transmission of fixed assets that have benefit from reinvestment deduction or benefits deriving from the transfer of fixed assets already been used to invest the RIC.
The entities who can benefit of the RIC are, companies and legal entities subject to Corporate Tax on their Canary Islands; Individuals and entities non resident in Spain that operate in the Canary Islands through a permanent establishment and Individuals subject to Income Tax (IRPF) for business and professional activities carried out through their companies in the Canary Islands (with fiscal address).
3. ZEC - Canary Islands Special Zone
Companies registering within the Canary Islands Special Zone (ZEC) automatically and permanently benefit from this 4% rate applied on the gross tax base on operations carried out materially and effectively in or from the Canary Islands. The average tax within EU is 25%.
The special ZEC regime may be applicable to newly incorporated legal persons as well as branch offices.
4. Corporation Tax Deduction for Investments in the Canary Islands for new fixed assets
It is a fiscal incentive applicable in the acquisition of new fixed assets in the Canary Islands. The amount of the deduction is calculated by applying the legally stipulated percentage deduction (25%) to the acquisition cost of the asset. The deduction will reduce the corporate income tax quote after applying the deductions for double taxation and possible allowances.
This special deduction is applicable to all companies and other legal entities that pay Corporate Income Tax or non- resident income tax provided that are domiciled in Canaries and, Individuals who engage in business or professional activities in the Canary Islands.
5. Increased Regime for Investments in Canary Islands
The Increased Regime for Investments in Canary Islands consists of a reduction in the corporate tax quote, once the double taxation deduction and other possible allowances have been applied.
The legally stipulated percentage deduction for each category of investment applicable in the rest of the Spanish territory is increased for the Canary Islands. Films producer investments and investment for R&D&i activities are eligible for deduction.
Beside the famous 4% tax regime (ZEC), the Canary Islands have other fiscal benefits and incentives which purpose is to foster and increase foreign investment. These rewards are not well known worldwide and can be strategic for companies who are looking to increase its profits.
If you want to know better about these benefits or if you have any doubt our experts will be glad to help you.
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