IGIC is an indirect tax levied on the supply of goods and/or services carried out by entrepreneurs or professionals resident in the Canary Islands in the course of their professional or business activity.

It works in a similar way to VAT. Entrepreneurs, when they purchase goods or services for their business, have to pay a percentage of IGIC (IGIC soportado). Once they sell the goods or services to their customers, they apply the same percentage of the tax again (IGIC repercutido).

The IGIC is applied to imports of goods received in the Canary Islands, whatever the purpose for which they are destined or the condition of the importer. Imports are considered to be the entry of goods into the Canary Islands from the mainland, the Balearic Islands, Ceuta, Melilla, any Member State of the European Union or from third countries.

The IGIC is characterised by lower rates than VAT.

Zero rate for basic necessities (0%): applied to deliveries of water, medicines, books, newspapers and magazines, construction of subsidised housing, foodstuffs and passenger air transport.

Reduced rate (3%): this applies to supplies or imports of products derived from certain industries and activities such as mining, the chemical industry, textiles, wood, potato; apparatus and accessories (such as glasses and contact lenses used to compensate for physical deficiencies in people or animals, as well as health products to prevent, diagnose, treat, alleviate or cure human or animal illnesses.

General rate (7%): applies to the supply of products and services that are not included in other rates.

Increased rate (9.5%): this applies to the importation of certain goods such as vehicles, jet skis and boats (to which the 13.5% rate does not apply), as well as to certain services of movable works.

Special increased rate (15%): this is applied to tobacco with a previous price of more than 1.8 euros per unit, alcoholic beverages, jewellery, cartridges, fur and perfumery. It also affects motor vehicles with a power of more than 11hp, except for buses, taxis and similar.

Special rates of 20% for the production of dark tobacco and 35% for blond tobacco.

For the purposes of the IGIC, the following are considered taxable persons: entrepreneurs or professionals, persons and/or entities who habitually carry out business or professional activities, or who exploit an asset in order to obtain continuous income over time, such as property lessors and property developers.

In addition, they will be considered taxable persons for IGIC:

• Trading companies
• Those who carry out transactions involving:
  • One or more supplies of goods or services involving the exploitation of tangible property, or not, with a view to making a profit.
  • The development of land and the promotion, construction or refurbishment of buildings for sale, adjudication or transfer by any title, even if carried out on an occasional basis.

The activities exempted from IGIC are postal services, social assistance services, services provided by sports entities, health care, education, blood deliveries, cultural enterprises, financial operations, insurance and reinsurance operations and retail trade.

As of 1 January 2018, a new special scheme applicable to small entrepreneurs or professionals came into force. Taxpayers included in this regime are exempt from IGIC (they do not charge IGIC) and are obliged to register using Form 400.

Thus, those who meet the following requirements are included in this regime, unless they renounce: being a natural person, carrying out a business or professional activity, and that the volume of operations in the previous year has not exceeded 30,000 euros. If the entrepreneur is also the owner of properties that he rents out, the volume of operations of these leases will be taken into account for the purposes of the limit of 30,000 euros.

It should be borne in mind that if we are going to trade with the Canary Islands, deliveries of goods and services will be considered an import and as such will be exempt from VAT.

However, when invoicing in the Canary Islands it is necessary to differentiate whether it is a supply of goods or a provision of services and whether the supply is made to a company or to an individual.

In this case it will be considered an export and will be exempt from VAT. Therefore, the Canary Islands buyer must pay the IGIC. The seller must declare the operation through the quarterly Form 303 and the VAT summary Form 390.

In this case, VAT must be applied, even if the client resides in the Canary Islands. However, since 2015 there are a number of exceptions. In the case of telecommunications, radio and television broadcasting services, or services provided electronically, IGIC must be applied.

In this case we will issue the invoice as if it were exempt from VAT. The recipient must apply the IGIC when he receives it. This is known as reverse charge. Therefore, we will have to reflect the operation as not subject to VAT and not as an export (unlike the commercialisation of products).

There are certain exceptions such as advertising, consultancy, legal services, etc. VAT will be applied to those services provided in the Canary Islands for use on the mainland.

Submission of the census registration to the Canary Islands Tax Administration by means of Form 400. This form must be submitted prior to the commencement of business or professional activities. This form will also be used as a modification declaration when any of the identification data or any other data considered in the declaration of commencement or in any other previous modification declaration changes. This form shall also be filed when the taxpayer ceases to carry out the entire business or professional activity of the taxpayer or when, for other reasons, they should no longer form part of the census of entrepreneurs and professionals.

Once the activity is being carried out, the taxpayer will have to file quarterly tax returns either using form 420 for the general system or form 421 for the simplified system.

In addition, the annual IGIC summary must be filed using Form 425 and an informative declaration using Form 415 which will include all those clients and suppliers with whom annual transactions have been carried out for a value of more than 3,006 euros.

• First quarter. From 1 to 20 April, both inclusive.
• Second quarter. From 1 to 20 July, both inclusive.
• Third quarter. From 1 to 20 October, both inclusive.
• Fourth Quarter. From 1 to 30 January inclusive.