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Income tax

The two lowest regional tax brackets have been reduced from 9.5% to 9% (for incomes up to 12,450 euros) and from 12% to 11.5% (for incomes between 12,450 euros and 17,707 euros).

These are only the regional half of the income tax, as they need to be added to the state rates to reach the total rates payable in the Canary Islands for 2019 income.

In 2018, the lowest two state rates were 9.5% and 12%. The rest of the regional bands remain the same (up to 24%, this maximum rate applies to incomes above € 90,000) and must all be added to the state rates to arrive at the income tax rates applicable for residents of the Canary Islands.

The state maximum rate was 22.5% in 2018.

Inheritance and gift tax

In 2016, a reduction of 99.9% was introduced for inheritance and gift tax for “group I and II beneficiaries”.

This concerns spouses, children and other descendants (e.g. grandchildren, etc.)

And parents and other ancestors (eg Grandparents). For these groups it applies to both inheritances and lifetime gifts, but for gifts the gift must be completed using a public deed.

Now, as of January 1, 2019, this 99.9% relief has been extended to "Group III beneficiaries".

This includes brothers and sisters, nephews, cousins, aunts and uncles. It may also include some in-laws and stepchildren under certain circumstances, but this needs to be reviewed on a case-by-case basis.

Note that for Group III beneficiaries, the relief applies only to inheritances; does not apply to gifts for life. IGIC The Canary Islands special VAT known as IGIC has been reduced from 7% to 6.5%.

Tax residence

It has always been important to understand the different Spanish criteria that make you a resident here for tax purposes and to follow the rules correctly.

We have been informed by several Spanish tax lawyers who have recently seen an increase in tax residency inspections, especially for the wealthiest people.

In some cases, people only spent a very few days in Spain, but the Spanish Tax Office claims that Spain is their center of economic interests, which would make them tax residents in Spain.

So it is worth remembering that tax residency in Spain is not just about counting days. Other factors may have substantial relevance, depending on the circumstances, even if you spend far fewer than 183 days a year here.

Tax on turnover in the Canary Islands

The Canary Islands and Community VAT legislation

The Canary Islands are not part of the Community territory for VAT purposes (Article 6 of the VAT Directive).

Harmonized VAT rules do not apply to the Canary Islands and the application of turnover taxes is the responsibility of national or local authorities, subject to compliance with the general principles of the Treaty on the Functioning of the European Union and, in particular, the absence of discrimination in the taxation of products.

VAT does not exist in the Canary Islands but there is a local consumption tax known as IGIC (Impuesto General Indirecto de Canarias - Canaries General Indirect Tax) applied at different rates.

There is also another consumer tax known as AIEM, discussed below.

AIEM tax (excise duty on imports and deliveries of goods in the Canary Islands In principle, the Treaty does not allow differences in taxation between local products and products imported from Spain or other Member States.

However, the specificity of the outermost regions, one of which is the Canary Islands, is established by Article 349 of the Treaty on the Functioning of the European Union, which allows for the adoption of specific measures, in particular in the fiscal field, to take into account particular characteristics and constraints of these regions.

Local producers have to deal with a series of constraints, mainly caused by their remoteness, the effect of which is to raise the cost prices of their products, thus making them uncompetitive with products from other countries (in particular Mainland Spain and the other EU Member States).

This justified the implementation of a specific measure, which, through tax exemptions or reductions for local products, serves to encourage industrial productive activity, safeguard their competitiveness with external products and thus increase the percentage of Canary Islands GDP represented. from industrial activity.

The decision (EU) 2020/1792 of November 16, 2020 authorizes the Spanish authorities to apply total exemptions or reductions of the local AIEM tax in relation to a limited list of locally manufactured products specified in the annex to this decision until 31 December 2020.

Such tax exemptions or reductions cannot lead to tax differentials greater than 15%. However, this tax advantage is subject to a limit of EUR 150 million per year.

This decision therefore allows the application, within the authorized limits, of tax differentials between local products and products outside the Canary Islands.

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