The Canary Islands are said to be a tax haven. As a matter of fact, opening a company in Spain and the Canary Islands is worthwhile for various reasons. The Spanish islands enjoy a tax system for businesses and professionals – REF – the main advantages thereof are: an extremely advantageous tax rate of 15% for the first two years – which is valid for all of Spain and the free zones of Gran Canaria and Tenerife; an investment reserve deductible up to 90%; a tax deduction for investment compatible with the reserve; VAT rate at 7%.
How VAT and the main tax deductions of REF work. The Canary Islands’ economic and tax regime
The advantageous tax rate that makes Spain one of the ess taxed countries in the EU
- 15% tax rate for the first two years of operations. The 15% rate is the same for all of Spain and also applies to digital business companies that operate in dropshipping. After the first two years, it increases to 25%.
Free Zones for large import-export companies with at least one fiscally resident administrator in the Canaries
- ZEC free zones of Gran Canaria and Tenerife. Within these two areas, the tax rate is 4% up to 1,800,000 Euros, but these benefits are provided for companies with at least one fiscally resident administrator in the Canaries, with investments from 50,000 to 100,000 Euros, with a minimum of 3 to 5 employees according to the area. The ZEC objective is achievable by companies that deal with the import and export of tangible goods. It’s been designed to encourage commercial exchanges arriving and departing from the Canaries through the main ports of Tenerife and Gran Canaria.
RIC – Investment Reserve, deductible up to 90%
- RIC is another conspicuous advantage that the Canary Islands tax system reserves for both individuals and businesses. It is a non-taxable profit reserve of up to 90%, which can be required to be reinvested in the Canary Islands. All companies and legal entities subject to corporate tax and natural persons subject to IRPEF tax, such as professionals, are entitled to apply for RIC, with the exclusion of certain categories of sensitive activities such as shipbuilding, synthetic fibers, automotive industry, steel and coal industry. RIC is also recognized to companies and professionals domiciled in a different country, provided that they have a permanent establishment in the Canary Islands and carry out their activity there, in whole or in part in a continuous and habitual form, with the power to contract in the name and on behalf of the non-resident person. Among the most interesting investments for businesses, professionals and companies that can apply for RIC are: establishment costs; patent and trademark transfer rights; IT applications, production of audiovisual products; purchase of real estate; purchase of technical goods and transport and production machines; purchase of IT resources.
Tax deduction for investments in the Canaries
DIC, compatible with RIC. It is a tax deduction scheme for investments in the Canary Islands. As for RIC, companies and legal persons subject to corporate tax who have their domicile or a permanent establishment in the Canary Islands can use this form of benefit. Furthermore, DIC is granted to natural persons who do business and to professionals operating in the Canary Islands subject to the regulations provided for by the REF, the Economic and Tax Regime of the Canary Islands.
VAT system in the Canary Islands – IGIC
- The payment of value added tax in the Canary Islands does not exist. The counterpart of VAT is IGIC, an indirect local tax, with a rate of 7% on primary goods, up to a maximum of 15% on non-primary and luxury goods. High-tech and IT goods are not subject to IGIC and purchases are practically exempt from VAT. IGIC is particularly advantageous for consultants, intermediaries, providers of goods and services and companies that deal with e-commerce and dropshipping of products made abroad, marketed by companies based in the Canary Islands, by ship to EU countries. In these cases, a delicate management of VAT is opened on incoming and outgoing invoices, for which the advice of a tax lawyer is essential. In general, these transactions are outside the scope of VAT, since the Canary Islands are part of Spain, a member state of the EU. For legal entities, companies, professionals, private citizens outside of Spain and the Canary Islands, but within the EU, it is possible to operate without VAT and invoice with tax equal to 7% to non-EU individuals. The billing regime is more articulated for companies and businesses.