As you are probably already aware, the Canary Islands are subject to a different rate of taxation as far as Value Added Tax is concerned. Transactions with the Canary Islands are not subject to VAT, but there is a tax rate called Canary Islands General Indirect Tax (IGIC), which has been in operation since 1991.
In this post we will explain what is the IGIC, how it is calculated and which operations are subject to this indirect tax. If you have any questions, our tax consultancy in the Canary Islands can be very useful to you.
What is the IGIC?
This is an indirect tax similar to VAT, which is levied on consumption in the Canary Islands. Its scope of application includes the entire island territory and up to a limit of 12 nautical miles, as well as all its airspace.
As it is a different rate of taxation to the VAT applied in mainland Spain and the Balearic Islands, this means that operations subject to IGIC pay a lower amount than consumption. Currently, and from 2020, the general IGIC rate is 7%. There is also a reduced IGIC, which is 3%.
Where does the IGIC apply?
IGIC is applied to transactions that are not exempt within the territorial scope of the Canary Islands.
It concerns both transactions between companies and private individuals and between companies and other companies, or between self-employed persons and private individuals and companies, whose tax residence is in the Canary Islands.
However, the situation is different in the case of transactions where one of the parties has its tax domicile in mainland Spain or the Balearic Islands. Let us look at the different cases.
- Provision of services to private individuals located in the Canary Islands: if the issuer of the invoice is domiciled on the peninsula, the invoice must be made with VAT and without IGIC.
- Provision of services to companies located in the Canary Islands: no VAT or IGIC is invoiced. It is the company to which the invoice is addressed that must, however, pay the IGIC, by means of a self-assessment of the tax, which is known as reverse charge.
- Sale of goods to individuals or companies established in the Canary Islands: in this case, it would be treated as an export to a country outside the European Union, the sale would be exempt from VAT and the buyer would have to pay IGIC on entry into the Canary Islands.
- Sale of goods or provision of services between companies or company-individuals in the Canary Islands: would, as a general rule, be invoiced with IGIC, except in certain cases.
IGIC exemptions
It should also be borne in mind that in the Canary Islands there are some exemptions to IGIC, such as that of the retail traders (businesses that sell at least 70% of their production to private individuals without having undergone any processing) or the tax exemption for the self-employed (entrepreneurs or professionals who do not exceed an annual turnover of 30,000 euros) in which the sale of their products or provision of services would be exempt from IGIC.
How is the IGIC calculated?
The procedure for calculating the IGIC that would apply to a transaction is as simple as calculating VAT.
If, for example, the taxable amount of a service provided between two companies in the Canary Islands is 100 euros. If this service is subject to the general rate of 7%, the IGIC will be €7 and the invoice will be for a total amount of €107. Or if the reduced rate is applied, the cost would be €103.
From Exim Asesores we invite you to ask for our services if you regularly make operations with the Canary Islands, or if you have a company located in the Canary Islands, as we can advise you on each specific case so that you have no doubts and avoid making mistakes.
