The Canary Islands, which form part of the Kingdom of Spain for all purposes, enjoy several very interesting tax incentives. Most of these tax advantages are justified by the fact that these Atlantic islands are an ultra-periphery territory of an EU country .Together with the quite well know Special Canary Islands Zone (“Zona Especial Canaria” or ZEC, for his Spanish Acronym) which is characterized for a 4 % Corporation Income Tax, the Law grants a tax credit for the investments made in certain West African countries.
Thus investments actually made in the establishment of subsidiaries or permanent establishments in the Kingdom of Morocco, the Islamic Republic of Mauritania, the Republic of Senegal, the Republic of The Gambia, the Republic of Guinea Bissau and in the Republic of Cape Verde, qualify for a 15 % tax credit on the amount invested, provided that these entities carry out economic activities in those territories within one year from the time of the investment.
Likewise, the same tax credit of 15 % can be claimed for the amounts paid for advertising and publicity expenses with a multi-year projection for launching products, opening and prospecting of markets abroad and attending fairs, exhibitions and similar events, including in this case the celebrated events In Spain with an international character. To enjoy this tax credit, the following requirements must be met:
a) The investor must be domiciled in the Canary Islands. It is very important to realize that even if the investor does not qualify for the ZEC special regime (which requires meet certain conditions is terms of investments, staff in the Canary Islands and residence of Directors among others) he could apply this tax credit as long as he is domiciled in the Canary Islands. Of course, if the investor qualifies for the ZEC regime, both tax incentives are applicable simultaneously. For further information about the ZEC regime kindly read our post the ZEC regime.
b) The investor, alone or jointly with other entities with tax domicile in the Canary Islands, has a participation in the capital of the subsidiary of at least 50 %.
c) The investment is maintained for a period of at least 3 years.
d) The investor must increase the average workforce in the Canaries in respect of the previous year and must keep that increase over a period of 3 years. For newly incorporated companies, this requirement should not be difficult to achieve, since the previous year the average work force would be zero. However, to meet this requirement, the investor must hire, albeit part-time, someone.
Note however that the 15 % tax credit requires that the investor is considered a small or medium size company, i.e., that the turnover in the previous year does not exceed 10 million euros and the average workforce in that period is less than 50 persons. Nevertheless, if the size of the company is bigger than that, the tax credit would still be applicable, but at a reduced rate. If the turnover does not exceed 50 million euros and the average staff is less than 250, the tax credit shall be reduced to 10 %. In excess of these latter amounts, no tax credit could be claimed. It is noteworthy saying that all these figures must be computed at the group level, if the investor belongs to a group of companies.
The tax credit is limited to the Corporation Tax general limit of 25 % of the tax payable. If the tax credit to which the investor is entitled exceed that amount, it can be carried forward for 15 years and be offset against the tax liability of said years within the same limit.
Finally, the tax credit shall also apply to natural persons who carry out economic activities in the Canary Islands.