REF: Economic and Taxation system of the Canary Islands. Canarianlawyers.com

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REF (Régimen económico y fiscal de Canarias, "Economic and Taxation System of the Canary Islands")

ORIGIN

The development of the Economic and Taxation System of the Canary Islands, which took place in the 15. century, is mainly caused and influenced by the uniqueness of the Islands that is expressed by the typical island-character, the distance to the continent, the shortage of natural resources combined with geographical, geological and climatic peculiarities which altogether differentiate the Islands from the rest of Europe.

Today's peculiarities of taxation weren't the first ones: In the past the Islands gained profit from their status as free trade area (from 1852 on) including free trade as well as the lack of duties. In 1900 the free trade area law was put into operation and paved the way for the the current Economic and Taxation System (REF) which emerged in 1972 and modernized the taxation system valid at that time. It also invalidated the Island's status as free trade area.

In 1992 the REF was modernized in order to fulfill the requirements of the European Economic Community and furthermore to establish an own economic system that met the economic developments on the Islands which principally took place in the sevice sector.

Tax advantages through the REF

Bill 19/94 of July 6 about "Modification of the Economic and Taxation System on the Canary Islands", modified by the "Real Decreto-Ley 3/1996 of January 26 (B.O.E 27/01/96)

Investment reserves on the Canary Islands

- 90 % of the income tax of a company and the non-distributed earnings are reduced and are forwarded to the investment reserves
a) The reserve savings have to be materialized or invested in fixed assets that serve the company's acitivities within three years (these companies must have their registered head office on the Canary Islands and are obliged to contribute to the protection of the environment in whatever kind of way)

b) Investment in shares or in debts of the autonomous region of the Canary Islands (provided that 50% of this investment in the local companies are passed on to the infrastructure or the protection of the environment)

c) Acquisition of shares of companies that don't have their origin on the Canary Islands but equal investment like the ones mentioned in a)

-Deduction of 80 % from the total quota of the income tax for the capacities that are determined for the investement reserves

TAX INCENTIVES

Exempted from taxation are the foundation, extension, modernization or relocation of companies on the Canary Islands.
The acquisition of goods and rights through inheritance is released from taxation.
Exemption of payment of the IGIC (Canary Islands tax) for delivery and import of goods that serve as an investment in favour of the companies that fulfill the mentioned requirements (valid for companies located in Spain as well as in other countries).