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

In short: IGIC (Impuesto General Indirecto Canario) is the Canary Islands' general indirect tax, used there instead of Spanish VAT. The general IGIC rate is 7%, compared with 21% VAT in mainland Spain. IGIC also has rates from 0% to 20%, depending on the goods or services.

IGIC (Impuesto General Indirecto Canario) is the Canary Islands' version of Spain's VAT. It is also known as IGIC Spain. Why does it matter? IGIC Spain has lower tax rates and unique benefits that can save businesses and consumers money. Below, we look at how IGIC works and how it differs from the standard VAT in mainland Spain.

What is IGIC?

IGIC, or Impuesto General Indirecto Canario, is a general indirect tax on consumption in the Canary Islands. It also covers the islands' territorial sea and airspace. IGIC was established in January 1993. It is the Canary Islands' equivalent of mainland Spain's VAT, but it has its own rules and tax rates.

VAT is harmonized across the European Union, but IGIC is a local consumer tax. It is designed to keep the Canary Islands' economy distinct and competitive. VAT applies uniformly across Spain and the Balearic Islands. IGIC, by contrast, is tailored to the Canary Islands' unique economy, with lower rates and a broader range of tax types.

What are the key differences between IGIC and VAT?

The biggest difference between IGIC and VAT is the tax rate. VAT in mainland Spain and the Balearic Islands has a general rate of 21%. Its reduced and super-reduced rates are 10% and 4%. You can also read Spanish VAT Rate in 2024: All You Need to Know.

In contrast, the general IGIC rate is only 7%, much lower than the mainland VAT rate. This lower rate cuts costs for consumers and businesses in the Canary Islands and helps boost the economy.

IGIC also has more rates than VAT's three-tier system. IGIC has six different tax rates:

• 0%
• 3%
• 7%
• 9.5%
• 15%
• 20%

Each IGIC rate applies to specific goods and services. This structure allows more nuanced taxation that benefits different sectors in different ways. For example, certain telecommunications services are exempt under IGIC, which is not the case with VAT.

These differences reflect a strategic approach to managing the economy. With lower rates and broader categories, IGIC gives real tax benefits. It encourages local spending and supports businesses. In turn, this helps the region's economy and makes it more attractive to businesses.

What are the IGIC tax rates?

IGIC tax rates range from 0% to 20%, and each rate is tailored to different products and services. This range keeps essential goods affordable, while luxury items contribute more to 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).
  • Clothing and footwear.
  • Transport services.
  • Water supply.
• Standard rate (7%)
  • General goods and services not specifically classified in other rates.
  • Most consumer goods and services, including electronics and dining out.
• Increased rate (9.5%)
  • Some luxury goods and services.
• Special rates (15%)
  • Spirits.
  • Perfumes products.
  • Jewelry and precious stones.
• Special increased Rate (20%)
  • Tobacco products.

These IGIC rates aim to create a favorable tax environment for residents and businesses in the Canary Islands. At the same time, they still raise revenue for public services and infrastructure. Exactly what falls into each category can be detailed. You may need to check with the local tax authorities or a tax professional.

Which activities are exempt from IGIC?

Several activities and transactions in the Canary Islands are exempt from IGIC. 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 IGIC exemptions support key sectors such as education, healthcare, social services, and certain financial and cultural activities. They also promote agriculture, fisheries and international trade.

How does IGIC apply to imports?

Goods imported into the Canary Islands can sometimes cost more, despite the lower IGIC rates, because of the AIEM tax. AIEM stands for Arbitrio sobre Importaciones y Entregas de Mercancías en las Islas Canarias. It supports local industries by making imported goods less competitive than locally produced items.

Certain local products get AIEM tax exemptions or reductions. This promotes industry and competitiveness within the Canary Islands. It also helps balance costs, so local manufacturers can thrive despite the region's distance from mainland Spain and other EU Member States.

What are the benefits of IGIC for businesses?

Businesses in the Canary Islands get several tax benefits under the IGIC system. Companies in the Canary Islands Special Zone (ZEC) are exempt from IGIC on sales of goods and services to other ZEC entities. This greatly reduces their running costs and encourages economic and social development in 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 makes the Canary Islands a very attractive place to invest and supports growth and development.

AIEM tax exemptions or reductions on local products also help local manufacturers compete with imported goods. This supports the local economy. Together, these tax advantages help create a thriving business environment in the Canary Islands.

Who must declare IGIC?

SMEs, self-employed workers and any businesses carrying out operations subject to IGIC in the Canary Islands must declare IGIC. These declarations are essential to comply with local tax rules and report tax accurately.

SMEs and self-employed workers use Form 420 to declare IGIC. Form 415 is used for informative declarations related to IGIC. These forms make sure all relevant transactions and tax liabilities are reported and managed accurately.

How does IGIC affect consumers?

Consumers in the Canary Islands benefit a lot from lower IGIC rates. For example, buying a new house in the Canary Islands is subject to a 7% IGIC rate, compared to a 10% VAT rate in mainland Spain. This means big savings. Gasoline prices in the Canary Islands are also typically lower than in Madrid.

These lower IGIC rates make everyday costs more affordable and help raise living standards for residents. However, you could argue that both IGIC and VAT are regressive taxes. They affect consumers regardless of their income level.

Is IGIC good for the Canary Islands?

IGIC is a unique and advantageous tax system for the Canary Islands. Its lower rates and varied categories bring real benefits to consumers and businesses alike. Essential goods are taxed at zero percent, while luxury items contribute more through higher rates. This gives IGIC a balanced and fairer tax structure.

Overall, the tax advantages of IGIC encourage investment, economic growth and a higher standard of living in the Canary Islands. If you understand and use these benefits, you can make the most of the region's favorable tax environment.

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