The Canary Islands are part of Spain and therefore belong to the European Union. Nonetheless, they have a specific fiscal system given their geographical location in relation to the rest of Europe. The European Community has recognised their ultra peripheral character in Europe and they are part of the POSEICAN (Programme for Specific Options in view of the Remoteness of the Canary Islands).
Instead of charging 21% VAT (Value Added Tax), 7% IGIC (General Indirect Tax of the Canary Islands) is applied in the Canary Islands. The aim of which is to levy a tax on the end consumption substituting the European Community’s VAT on consumption. This is due to the fact that in the Canary Islands, the common system of tax on value added of Directive 2006/112/CE of the Council is not applied. IGIC has various advantages compared to VAT:
- Lower rate of tax (VAT: 21% - IGIC 7%)
- Application of a zero rate or reduced rate of 3% on particular products and services, such as the island transport of passengers and goods.
- No tax is levied on self-consumption or sales made by retailers, as well as there being a number of other tax breaks (exemption from IGIC on certain purchases of investment assets under specific conditions, the existence of the “Zona Especial Canaria” (Canary Islands Special Area) with lower taxation, etc.)
If a company is contracted, this company should submit an invoice for the amount for services rendered plus the relevent Igic tax. If a freelance professional is contracted, this professional should submit an invoice for services rendered with a deduction of 18% for Income Tax (IRPF-Impuesto sobre la Renta de las Personas Físicas).