One of the first questions any business operating in — or thinking of establishing in — the Canary Islands asks is: what is the difference between IGIC and VAT? The answer has very significant fiscal implications for both businesses and end consumers.
The Canary Islands are excluded from the EU VAT territory. Instead, IGIC at 7% applies instead of the general VAT rate of 21% — a 14 percentage point difference that represents a real competitive advantage.
The Canary Islands General Indirect Tax (IGIC) is the indirect tax levied on consumption in the Canary Islands, created by Law 20/1991. Like VAT, it is a value-added tax levied on supplies of goods and services by businesses in the Canary Islands and on imports of goods into the Canary Islands territory.
Zero rate (0%): basic food products, books, medicines, inter-island passenger transport.
Reduced rate (3%): new housing, water, electricity.
General rate (7%): most goods and services.
Increased rate (9.5%): tobacco.
Special rate (20%): certain luxury vehicles.
The IGIC general rate is 7% versus 21% VAT. Goods and services in the Canary Islands are fiscally cheaper for end consumers.
The Canary Islands are excluded from the EU VAT area. This has important consequences for international operations.
When a Canarian company imports goods from outside the islands (including mainland Spain), the transaction is subject to IGIC on entry into Canary Islands territory.
For international investors, establishing in the Canary Islands means working with IGIC instead of VAT. The 7% general rate represents a competitive advantage in non-recoverable costs and commercial margins versus mainland or European competitors.
Analyse your tax situation with no commitment. We speak English.
Free consultation →