From centuries ago, the Canary Islands have had some tax advantages. These advantages are detailed in a Law called REF (Economic and Tax Regime for the Canary Islands). The Government in the Canary Islands has managed to have these tax advantages –only existing in the Canaries- renewed by the national Government and the European Union.

The most important changes are referred to the famous Reserve for Investment in the Canary Islands (RIC). This RIC is, in brief, a chance for companies developing their economic activities in the Canaries may reinvest up to 90% of their profits in their own companies under certain conditions and just paying tax on the remaining 10%. The difference in the tax burden is substantial compared to the rest of the Spanish territory.

The most relevant changes in the new RIC are:

1. The RIC may now be used to finance the employment costs (wages and social security) related to new staff employed for developing the new investments to be made by the companies. This may be done during a 24 month term. The creation of employment has to be done in a 6 month term from the investment start-up. These new employments shall have to be maintained by the company for at least 5 years.

2. The Ric may also be used in fixed assets required for the activity purposes, as far as these fixed assets have not yet enjoyed of such tax advantage.

3. The RIC may also be assigned to companies in the ZEC (Canaries Special Zone), which is a low taxation zone existing in certain parties of the Canary Islands.

4. According to the Spanish Public Tax Administration, companies intending to invest in the RIC have to submit an invetsment plan containing some relevant information; this plan shall have to be properly stated in the annual report to be submitted by the companies to the Trade Registry.

5. A new penalty system has been developed applicable to companies not meeting the established requirements. The purpose of this system is to obtain a higher transparency in the fulfilment of the RIC obligations and to punish those companies that are not meeting them.

6. The RIC applied to land is from now on restricted. Nevertheless, land investment is allowed for industrial activities and subsidized housing.

7. The RIC shall have to clearly appear in the company annual accounts.

8. The RIC shall have to be reinvested in a 3 year term from the year in which the company has adopted the RIC system.

9. The RIC may also be used for the creation of new branches, or the expansion of these branches, the diversification of the company’s economic activity, the creation of new establishment for new products, as well as premises for product transformation and processing.

10. This RIC may also be destined to the restoration of tourist establishments located in deteriorated and set back areas.

11. The RIC may still be invested in shares of Canary companies developing their activities within the archipelago. The investment shall be aimed to the purchase of the fixed assets required for the development of the company’s economic activity.

12. Companies may also use 50% of the amounts provided for the RIC in the Public Debt Subscription issued by the Autonomous Community of the Canary Islands, City Halls, Local Governments, etc…, as far as these entities use such investments in infrastructure and equipment works or in environmental improvements.

13. The RIC may also be used for research and development expenses in universities, public entities or innovation and technology centres. These investments shall have to stay operating for at least five years.

Conclusion: The RIC, the most important incentive to reduce taxes in the canaries, has been updated by the European Union and the Spanish Government until year 2013. New conditions for investments and new possibilities for the RIC have appeared, such as: it can be used to cover employment expenses related to new investments (wages and Social Security), investment may be made in used assets, restoration of deteriorated tourist areas, etc... but also there are new requisites to meet by the companies, such as the obligation of submitting an investment plan together with the annual tax return. In addition, a penalty system has been developed so the legal requisites are met.