What Is the Canary Islands General Indirect Tax (IGIC)?

IGIC (Impuesto General Indirecto Canario), is the Canary Islands’ version of Spain’s VAT, also known as IGIC Spain. Why does it matter? IGIC Spain offers lower tax rates and unique benefits that can save businesses and consumers money. In this post, we take a look at how it works and why it’s different from the standard VAT in mainland Spain.

What is IGIC?

IGIC, or Impuesto General Indirecto Canario, is a general indirect tax applied to consumption within the Canary Islands, including its territorial sea and airspace. Established in January 1993, the Canary Islands indirect tax serves as its equivalent to mainland Spain’s VAT, yet it operates under a different set of rules and tax rates.

Unlike VAT, which is harmonized across the European Union, IGIC is a local consumer tax designed to maintain the economic differentiation and competitiveness of the Canary Islands. This means that while VAT applies uniformly across Spain and the Balearic Islands, IGIC is tailored specifically to the unique economic landscape of the Canary Islands, offering lower rates and a broader range of tax types.

Key differences between IGIC and VAT

When comparing IGIC to VAT, the most striking difference is the tax rate. VAT in mainland Spain and the Balearic Islands stands at a general rate of 21%, with reduced and super-reduced rates of 10% and 4% respectively. In contrast, IGIC features a general rate of only 7%, significantly lower than the mainland VAT rate. This lower rate translates to reduced costs for consumers and businesses in the Canary Islands, fostering economic stimulation.

IGIC also encompasses a wider variety of rates compared to VAT’s three-tier system. It includes six different tax rates:

• 0%
• 3%
• 7%
• 9.5%
• 15%
• 20%

Each rate is designed to apply to specific goods and services. This structure allows for more nuanced taxation, benefiting various sectors uniquely. For example, certain telecommunications services enjoy exemptions under IGIC, which is not the case with VAT.

These differences reflect a strategic approach to economic management. By maintaining lower tax rates and broader categories, IGIC provides substantial tax benefits and advantages. This system incentivizes local consumption and supports businesses, ultimately contributing to the region’s economic health and attractiveness as a business destination.

IGIC tax rates

The IGIC tax regime is characterized by its varied rates, ranging from 0% to 20%, each tailored to different products and services. This diversity in rates ensures that essential goods are affordable while luxury items contribute more significantly to the tax revenue.

• Zero rate (0%)
  • Basic necessities such as bread, milk, cheese, eggs, fruits, and vegetables.
  • Books, newspapers, and magazines.
  • Medicines and medical equipment for hospital use.
• Reduced rate (3%)
  • Foods and beverages (except alcohol and soft drinks).
  • Transport services.
  • Water supply.
• Standard rate (7%)
  • General goods and services not specifically classified in other rates.
  • Most consumer goods and services, including electronics, clothing, and dining out.
• Increased rate (9.5%)
  • Some luxury goods and services.
• Special rates (15%)
  • Alcoholic beverages.
  • Perfumes products.
  • Jewelry and precious stones.
• Special increased Rate (20%)
  • Tobacco products.

These rates are designed to provide a favorable tax environment for residents and businesses in the Canary Islands while still ensuring revenue for public services and infrastructure. The specifics of what falls into each category can be detailed and may require consultation with local tax authorities or a tax professional.

Activities exempt from IGIC

Certain activities and transactions are exempt from IGIC in the Canary Islands. The main exemptions include:

• Education services
  • Public and private education services covering primary, secondary, and higher education.
  • Vocational training and courses provided by educational institutions.
• Healthcare services
  • Medical and hospital services provided by recognized healthcare institutions.
  • Services provided by doctors, dentists, and other healthcare professionals.
• Social services
  • Services provided by social welfare institutions.
  • Activities related to social assistance, including care for the elderly and disabled.
• Financial and insurance services
  • Banking and financial transactions.
  • Insurance and reinsurance services.
• Real estate transactions
  • Sale and rental of land and residential property (excluding commercial properties).
• Cultural services
  • Services provided by non-profit cultural organizations.
  • Certain artistic and cultural events.
• Postal services
  • Postal services provided by the national postal service.
• Agricultural and fisheries products
  • Sale of agricultural, livestock, and fisheries products by the producers.
• International transport services
  • International transport of passengers and goods.
  • Certain related services in the context of international trade.
• Exported goods and services
  • Goods exported outside the Canary Islands.
  • Services directly related to exported goods.
• Public administration activities
  • Services provided by the public administration that are not commercial in nature.

These exemptions aim to support key sectors such as education, healthcare, social services, and certain financial and cultural activities, while promoting economic activities like agriculture, fisheries, and international trade.

Importation and IGIC

Despite the lower IGIC rates, products imported into the Canary Islands can sometimes be more expensive due to the AIEM tax (Arbitrio sobre Importaciones y Entregas de Mercancías en las Islas Canarias). This tax is implemented to support local industries by making imported goods less competitive compared to locally produced items.

AIEM tax exemptions or reductions are granted for certain local products, promoting industrial activity and competitiveness within the Canary Islands. This system helps balance the cost structure, ensuring that local manufacturers can thrive despite the region’s remoteness from mainland Spain and other EU Member States.

Benefits of IGIC for businesses

Businesses in the Canary Islands enjoy several tax benefits under the IGIC system. Companies operating within the Canary Islands Special Zone (ZEC) are exempt from IGIC for sales of goods and services to other ZEC entities, significantly reducing operational costs. This exemption encourages economic and social development within the region.

Businesses in the ZEC benefit from:

• A reduced corporate tax rate of 4%, compared to the usual 25% in Spain.
• IGIC exemptions.
• The Reserva Inversiones de Canarias (RIC), which allows businesses to reduce their taxable base by reinvesting profits into local economic activities.

This creates a highly attractive environment for business investments and promotes growth and development.

Also, the AIEM tax exemptions or reductions on local products help local manufacturers compete against imported goods, supporting the local economy. These tax advantages collectively foster a thriving business environment in the Canary Islands.

Who must declare IGIC?

Entities required to declare IGIC include SMEs, self-employed workers, and any businesses involved in operations subject to IGIC in the Canary Islands. These declarations are essential for maintaining compliance with local tax regulations and ensuring accurate tax reporting.

Form 420 is used by SMEs and self-employed workers to declare IGIC, while Form 415 is used for informative declarations related to IGIC tax. These forms ensure that all relevant transactions and tax liabilities are accurately reported and managed.

How IGIC impacts consumers

Consumers in the Canary Islands benefit significantly from lower IGIC rates. For instance, purchasing a new house in the Canary Islands is subject to a 7% IGIC rate, compared to a 10% VAT rate in mainland Spain, resulting in substantial savings. Similarly, gasoline prices are lower, with 95 Octane gasoline priced at around 0.998€/liter at the time of writing, compared to 1.229€/liter in Madrid.

These lower rates help make everyday expenses more affordable, contributing to a higher standard of living for residents. However, it can be argued that both IGIC and VAT are regressive taxes, impacting consumers regardless of their income level.

Conclusion

IGIC stands out as a unique and advantageous tax system within the Canary Islands. Its lower rates and diverse categories provide significant benefits for consumers and businesses alike. From essential goods being taxed at zero percent to luxury items contributing more through higher rates, IGIC ensures a balanced and more equitable tax structure.

The overarching tax advantages of IGIC encourage investment, economic growth, and a higher standard of living in the Canary Islands. By understanding and leveraging these benefits, businesses and consumers can make the most of the region’s favorable tax environment.

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Frequently Asked Questions

What is IGIC?

IGIC stands for Impuesto General Indirecto Canario, which is a general indirect tax applied to consumption in the Canary Islands, similar to VAT in mainland Spain but with different rates and exemptions.

How does IGIC differ from VAT?

IGIC has lower tax rates and a broader range of categories compared to VAT, making it more favorable for consumers and businesses in the Canary Islands.

What are the IGIC tax rates?

The IGIC tax rates range from 0% to 20%, varying based on the type of goods and services.

Who must declare IGIC?

SMEs, self-employed workers, and businesses involved in IGIC-related operations must declare IGIC using specific forms like Form 420 and Form 415.

What are the benefits of IGIC for businesses?

The benefits of IGIC for businesses include lower tax rates, ZEC exemptions, reduced corporate tax rates, and incentives like the Reserva Inversiones de Canarias (RIC) that promote economic growth and development in the Canary Islands.

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