Since the first of January of 2001 the fiscal situation of IGIC (local VAT of the Canary Islands) has changed. These changes can be summarised in the following way:

1. Business and professional activities are considered to be initiated from the moment that goods or services are purchased with the intention of later setting up a business. This means that the possibility of deducting these costs in tax returns is also brought forward. Before it was only possible to deduct IGIC from the official start of business activities (registering a fiscal licence).

2. The free delivery of products or free provision of services will be considered to include IGIC. This means that when free services are offered, in other words like a present or gift, they will include the corresponding tax, therefore the company will have to pay the corresponding amount of IGIC to the tax authorities.

3. There is an exemption of IGIC in the sale of products or the provision of services carried out by individuals when the total amount of the operation is less than 4.000.000 pesetas (24.040,48 euros) in the previous year. In this way the amount, which was initially set at 3.000.000 pesetas, will be updated in order to benefit small businesses. It is also important to remember that retailing activities are exempt from IGIC.

4. The IGIC zero tax rate (in other words the tax will not exist) will apply to the following economic activities:

a) The production and distribution of drinking water except for mineral and carbonated water and also medical, veterinary and pharmaceutical products. However cosmetic products will continue to pay the corresponding IGIC

b) The sale of books, newspapers and magazines that do not solely contain advertising are also subject to the zero tax rate. Recorded products for the use of education or cultural purposes would also be included in this category.

c) The purchase of official subsidised housing. This refers to housing protected by the law and destined for people who have economic difficulties.

d) Sale of bread, flour, eggs, fruit, vegetable, garden produce, pulses, meat and fish (untreated and not packaged), milk, cheese etc. In short basic essential foodstuffs do not have IGIC

e) Transportation of passengers by sea or air between the Canary Islands.

f) Fitting of kitchens, bathrooms for official subsidised housing.

g) Construction of parks, gardens, schools and colleges and any work done on infrastructure (water, telecommunications, electricity etc.)

5. Modifications in the tax rate:

a) The tax rate on cars with over 11 registered horsepower will be 13%

b) The tax rate on the sale of cars with less than 11 registered horsepower will be 9%

c) The general tax rate on the hiring of vehicles (rent-a-car) will rise from 4.5% to 13%

d) The general IGIC tax rate will rise from 4.5% to 5%. This is perhaps the most important change.